In this piece, we will take a look at the 10 best auto stocks to invest in. If you want to skip our industry introduction and jump ahead to the top five stocks in this list, then head on over to 5 Best Auto Stocks to Invest In.
Out of the myriad of industries that make up the stock market, only a handful can be said to be tied directly to the economy’s health. One of these is the automotive sector which is more than a century old and is widely considered a barometer of economic health.
Ever since Henry Ford rolled out the first mass produced internal combustion car in the early 1900s, the automotive sector has been on an upward trend. The industry is also directly linked to the health of the economy since it employs millions of people and any drawdown in sales then results in the ripple effect that leads to job losses, lesser spending power, and an overall slowdown.
However, due to its age, the automotive industry does not have as stellar growth rates as other highly popular sectors such as technology and biotechnology. Yet, research reports still show that there is juice left in the sector, especially as the technological revolution that relies on data processing makes inroads into cars.
This fact is at the heart of a research report published by the famed analytics firm McKinsey. McKinsey believes that the automotive industry will heavily benefit from demand for mobility services and data driven analytics – and these two alone will contribute a staggering $1.5 trillion to the industry by 2030. Overall, it outlines that the sector will be worth an equally eye popping $6.7 trillion in 2030, growing from the $3.5 trillion that it was worth in 2015. However, the bulk of new sales in the future will be of shared vehicles, says McKinsey, and new car sales will grow by only 2% in its forecast period.
Research and Markets takes a different look at the industry as it wagers a guess focused on new car sales. The research firm outlines that new car sales will grow to 122.83 million units by 2030. Like most other sectors, Asia Pacific will fuel this growth as large swathes of populations entering the middle class start their prowl for efficient vehicles.
Finally, Market Research Future narrows its focus down to the automotive motor industry, and for a shorter time period. It outlines that this particular market will have a compounded annual growth rate (CAGR) of 6.55% by 2027, and goes on to concur with Research and Markets on the fact that Asia Pacific will represent the largest chunk of this growth.
Therefore it is clear that the automotive industry still has a lot of glitter to it, and for today’s piece, we take a look at some of the top players in the market. Out of these, some heavy hitters that are likely to catch your attention are Ford Motor Company (NYSE:F), Tesla, Inc. (NASDAQ:TSLA), and General Motors Company (NYSE:GM).
Our Methodology
In order to sift out the top automotive stocks, we studied the countless firms in the market and the industry itself to select which companies are catering to relevant trends. These firms were then ranked according to hedge fund sentiment generated via Insider Monkey’s 895 fund survey for the second quarter of this year.
Best Auto Stocks to Invest In
10. Volkswagen AG (OTCMKTS:VWAGY)
Volkswagen AG (OTCMKTS:VWAGY) is one of the most popular car companies in the world. The firm is headquartered in Wolfsburg, Germany and it sells a wide variety of vehicles such as passenger cars and commercial vehicles. Additionally, the firm also provides financial services and large bore diesel engines and turbomachinery.
Volkswagen AG (OTCMKTS:VWAGY) is turning out to be a strong player in the electric vehicle industry – one of the fastest growing subsegments of the auto sector. The company plans to build six massive gigafactories by 2030, ensuring that it has the right tools to capture the growth that we mentioned in our industry introduction. Volkswagen AG (OTCMKTS:VWAGY) also expects to grow its BEV electric vehicle market share to 8% by the end of this year. Finally, the company grew its inventory turnover in March 2022 over 2021, indicating that the market continued to buy its vehicles, despite another wave of disruption in the automotive sector that raised fears of a slowdown.
RBC Capital raised Volkswagen AG (OTCMKTS:VWAGY)’s share price target to EUR316 from EUR310 in August this year.
Volkswagen is the world’s biggest auto maker in annual sales. The company’s U.S.-listed preferred shares of Volkswagen (VWAPY) are down over 20% year to date, offering an attractive entry point. The stock also pays a dividend. Analysts also believe that Volkswagen stock could gain value on the back of the upcoming IPO of Porsche. Reportedly, Porsche could be valued at $60 billion to $85 billion.
Volkswagen AG (OTCPK:VLKAF) recently expanded its agreement with Mahindra & Mahindra Limited (OTCPK:MAHDY) to supply even more electric components to the Indian giant as part of its EV push.
Volkswagen AG (OTCMKTS:VWAGY) joins Tesla, Inc. (NASDAQ:TSLA), Ford Motor Company (NYSE:F), and General Motors Company (NYSE:GM) in our list of best auto stocks to invest in.
9. Mercedes-Benz Group AG (OTCMKTS:DMLRY)
Mercedes-Benz Group AG (OTCMKTS:DMLRY) is another iconic German car manufacturer that is best known for its luxury vehicles. It also sells passenger cars, and like other large car companies, the firm has a strong portfolio of vehicle financing and spare parts.
Mercedes-Benz Group AG (OTCMKTS:DMLRY) is slated to aggressively improve its luxury vehicle margins while reducing units shipped. By 2026, the firm aims to decrease its entry level vehicle sales to 510,000 units but increase the average selling price by up to 20% – as it aims at a historic double digit profit margin in a sector with high costs of goods sold. Additionally, the firm’s top end luxury vehicle segment with starting prices higher than EUR 100,000 is targeted to grow by an aggressive 60% overall and hike the average selling price by a whopping 15%.
Finally, the firm’s total addressable market of high net worth individuals is slated to grow by 50% in 2025 over 2020, providing it with a steady customer market that is eager to buy its cars. A brief look at its valuation suggests that with a cash flow growth rate of 4% and a 7% discount rate, the firm’s shares are roughly 30% undervalued.
7. BYD Company Limited (OTCMKTS:BYDDY)
BYD Company Limited (OTCMKTS:BYDDY) is a Chinese car company that sells several different kinds of vehicles, including those with internal combustion engines, hybrid vehicles, and battery electric vehicles. Additionally, the firm also sells buses, coaches, construction, and sanitation vehicles.
BYD Company Limited (OTCMKTS:BYDDY) is one of the strongest vertically integrated companies in the world, as it has battery, auto, bus, and semiconductor production under one roof. This lends it unique competitive advantages as it remains insular to broader industry shocks. It is also the world’s third largest company in terms of market capitalization. Additionally, BYD Company Limited (OTCMKTS:BYDDY) stunned observers in June 2022, when it tripled its electric vehicle deliveries to 134,000.
However, the best was still yet to come, as its July figures revealed that the firm grew its deliveries annually by a whopping 222% to stand in at 162,350 vehicles shipped. Finally, the firm is also targeting the juicy low price electric vehicle segment with vehicles that start at $13,878 – something which others such as Tesla are struggling to achieve.
6. Toyota Motor Corporation (NYSE:TM)
Toyota Motor Corporation (NYSE:TM) is a renowned auto manufacturer that is known for its sedans and coupes for the middle class. In addition to passenger vehicles, the company also sells minivans, commercial vehicles, and other components and accessories. It is headquartered in Toyota, Japan.
Toyota Motor Corporation (NYSE:TM) impressed market observers last year when it became the largest car company in the U.S. in terms of market share. The firm is pursuing a balanced approach to the electric vehicle race, as it continues to rely on its tried and tested hybrid platforms instead of pure battery electric vehicles. This has spurred the company to upgrade its portfolio of vehicles and it has four new vehicle models coming to the market this year. Finally, Toyota Motor Corporation (NYSE:TM) also pays a 63 cent dividend for a 1.62% yield.
UBS reduced Toyota Motor Corporation (NYSE:TM)’s share price target to 2,300 Yen from 2,500 Yen in July 2022, under the backdrop of macroeconomic worries but asserted that the firm will continue to have stable earnings. Insider Monkey’s Q2 2022 survey of 895 hedge funds revealed that 12 had bought the company’s shares.
Out of these, Ken Fisher’s Fisher Asset Management is the company’s largest investor through an $817 million stake that comes courtesy of 5.3 million shares.
6. XPeng Inc. (NYSE:XPEV)
XPeng Inc. (NYSE:XPEV) is a Chinese smart electric vehicle manufacturer that sells sports utility vehicles, sports sedans, and family sedans. The firm also provides maintenance, leasing, servicing, and other related services.
As we mentioned in our introduction, Asia Pacific is slated to be the strongest growing region for automobiles, and XPeng Inc. (NYSE:XPEV) is right at the center of this growth by being one of China’s fastest growing electric vehicle manufacturers. The company shipped 11,524 electric vehicles in China in July 2022, growing shipments by 43% annually and outpacing both of its rivals. Given this strong growth rate, XPeng Inc. (NYSE:XPEV)’s price to revenue ratio of 2x suggests that the firm is quite undervalued with plenty of room left for growth as the market starts to factor in its potential.
Morgan Stanley kept a $41 share price target for XPeng Inc. (NYSE:XPEV) in August 2022 as it stated that the company performed better than expected in July 2022. 24 out of the 895 hedge funds polled by Insider Monkey for their portfolio holdings for this year’s June quarter had held a stake in the company.
XPeng Inc. (NYSE:XPEV)’s largest investor is Chase Coleman and Feroz Dewan’s Tiger Global Management LLC which owns 4.3 million shares that are worth $138 million.
Ford Motor Company (NYSE:F), Tesla, Inc. (NASDAQ:TSLA), and General Motors Company (NYSE:GM) are met by XPeng Inc. (NYSE:XPEV) in our list of hot auto stocks.
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Disclosure. None. 10 Best Auto Stocks to Invest In is originally published on Insider Monkey.
