Why Toyota Motor Corp. Stock Is Practically Begging for Investor Attention

Toyota (NYSE: TM  ) is projecting almost no revenue or operating profit growth in the coming fiscal year, after a surge or 16% and 74% respectively in the 2013 fiscal year. According to the Wall Street Journal, company president Akio Toyoda used those projections to downplay expectations.

In previous years, Toyota (along with other Japanese exporters) has benefited from the weak yen; as the yen steadies, overseas sales become less lucrative and revenue declines. On top of this, unfavorable tax policy in Japan has caused the company to temper expectations even more. However, Toyota is entering a new phase in which they will emphasize sustainable growth that is not so dependent upon the volatility of trade and policy but rather on the underlying structure of the company.

Structural changes, cost cutting, and self-reliance
Toyoda said it best: "We were like a tree that grew too rapidly and as a result wasn't able to grow a strong enough trunk to protect it from the elements." He also advocates sustainable growth, which is music to the ears of this Fool.

The decline of the yen in previous years caused Toyota's revenue and profits to skyrocket, but also gave rise to business practices that are unsustainable in less favorable conditions. In particular, Toyota paid little mind to expense when expanding sales and manufacturing in North America. This resulted in a costly, spread-out operation that began to cause problems with the rise of the yen in the fourth quarter of 2013.

However, Toyota did its due diligence, recognized the issue, and is now moving to consolidate its North American operations in Dallas. This not only cuts costs through consolidation, but also saves money on taxes and overhead costs, as Dallas is relatively cheaper. It also brings the North American headquarters closer to major manufacturing plants, thus increasing efficiency. This is just one part of a robust cost-cutting operation that will save Toyota 165 billion yen (roughly $1.5 billion.)

On top of cutting costs, consolidating will also help with quality control. This is a problem that has plagued Toyota as a result of its rapid expansion (read: a $1.2 billion punitive measure as a result of consecutive recalls in the U.S. market.)

It seems that Toyota is pushing to create a firm organizational foundation, one that it previously lacked in North America. Essentially, Toyota is trying to create "One Toyota" in North America -- a self-reliant branch of the larger company that can individually show sustainable growth. The company grew without regard for efficient structure, and its current restructuring effort gives the company that structure.

Why this means success for Toyota
Despite its conservative growth forecast for the coming year, Toyota is taking in all-time high revenue and running an all-time high operating profit. The lack of growth that is forecast hardly constitutes a bump in the road, and Toyota is taking robust measures to ensure that negative policy and exchange conditions don't affect their bottom line as much as they have in the past.

Toyota is basing its management decisions on long-term goals, which is precisely why I am so high on the company's stock. Upon seeing stagnant sales, management could opt for a short-term fix; instead, Toyota is implementing long-term fiscally sound measures that ensure growth.

Now is the time to consider buying Toyota. It has an 8.8 forward P/E ratio, which indicates that it is trading cheaply when compared to an average industry P/E of 14.4. The low P/E can likely be attributed to investors' concerns about next year's tepid growth forecast. When taking into account the organizational focus on long-term growth over short-term gains, however, Toyota becomes a no-brainer. Combine this with the company's focus on R&D -- it plans to bring a fuel-cell sedan to the market as early as 2015 -- and you've got a company that's practically begging for attention.

3 stock picks to ride America's energy bonanza
Toyota's foray into fuel-cell technology is just one part of a growing energy market. Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Read/Post Comments (1) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 28, 2014, at 9:15 AM, henrobrice wrote:

    Hunter, great article. I bought into Toyota recently at $107. It doesn't have a huge dividend, but it has tons of cash and like you mentioned, a renewed commitment to cutting costs.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2969303, ~/Articles/ArticleHandler.aspx, 8/31/2014 12:34:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement