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Is Toyota's Stock an Opportunity?

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Few companies have brands that are as ubiquitous and respected around the world as Toyota (NYSE: TM  ) . Japan's largest automaker has built an enviable reputation for product quality and manufacturing efficiency – so enviable that many of its methods have become de facto auto industry standards.

Emulating Toyota's manufacturing methods has done wonders for companies like General Motors (NYSE: GM  ) and Ford (NYSE: F  ) . But over the last few years, Toyota has faced a sea of troubles: First, a recall scandal dented its previously formidable reputation for quality. Then, just as it was beginning to recover, a massive tsunami in northern Japan decimated its supplier network and left some of its assembly lines idled for months.

But for all that, Toyota's resiliency has been impressive. The Japanese giant has bounced back in impressive style – and is once again challenging GM for global auto sales supremacy in 2012.

But is Toyota a buy? That's a more complicated question. To help answer it, I created a premium research report to help investors understand the challenges facing Toyota, and the opportunities presented by the company.

Following is an excerpt from the report. We hope you enjoy it.

Is Toyota an opportunity?
Not so long ago, Toyota seemed on the brink of falling permanently behind its rivals. A series of safety and quality issues that had led to the recall of 14-million vehicles seemed to have permanently dented Toyota's reputation. And just when the automaker was starting to get back on its feet, a massive earthquake and tsunami in northern Japan destroyed key suppliers, leaving Toyota with severe inventory shortages that would last throughout 2011.

But less than a year later, all of that seems like ancient history. Toyota's sales in the crucial U.S. market were up 31.6% through the third quarter, more than twice the rate of the overall market. Sales in Japan, a market Toyota dominates, continue to be strong. And the company has continued to regain lost ground elsewhere.

Those efforts are showing up on Toyota's bottom line. Toyota earned $2.30 a share in the quarter ended June 30, a sharp increase from the $2.19 it earned in the preceding three quarters combined. Analysts estimate that Toyota's earnings for the full year – its fiscal year ends on March 31 – will come in at $7.32 a share.

Those gains have been driven in part by improved products, backed by the much-lauded (and much-imitated) manufacturing efficiency that keeps Toyota's costs relatively low and guarantees solid margins quarter after quarter, as long as sales volumes stay strong.

But those product improvements have been key. Toyota's products have never been thought of as bad. However, some of the company's offerings were looking uncompetitive as recently as a year ago when compared to radically improved cars from competitors like Ford and Hyundai (NASDAQOTH: HYMTF).

Hyundai's Sonata and Elantra trounced Toyota's models in comparisons, appearing to offer considerably more value (and similar quality) for the money. Meanwhile, Ford's German-developed Focus seemed to catch Toyota off guard, offering a near-luxury-car experience that Toyota's bread-and-butter Corolla was unable to match.

The Focus has quickly risen to become one of the world's best-selling cars, threatening to take the crown from Toyota – which has long held it with the Corolla and its relatives.

CEO Akio Toyoda acknowledged that the company needed to up its product game.

Looking for more insight?
That was just a sample of The Motley Fool's new premium report on Toyota. If you're weighing whether the company is a buy or sell, this new report is an essential resource for investors seeking to understand the potential ups and downs of an investment in the electric-car manufacturer. Not only that, but the report also comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. Just click here now to get started.

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