Black Friday Bargain Stock: Tata Motors

Unless you've been locked in your room watching Family Guy reruns for the past several years, you probably know that India is in the midst of explosive growth.

In 2006, the Indian economy grew at 9.4%, dwarfing the United States' 2.9%. This year alone, the Bombay Stock Exchange, measured by the Sensex, has returned more than 40% -- driven largely by the success of banks such as ICICI (NYSE: IBN  ) and HDFC (NYSE: HDB  ) .

With performance like this, it must be impossible to find a bargain. Right?

Despite the country's phenomenal growth, automotive companies have been stalling. Tata Motors' (NYSE: TTM  ) stock alone has fallen more than 14% year to date. But if you think the nosediving share price stems from poor business fundamentals, think again.

Don't let its industry fool you -- unlike notoriously poor-performing U.S. counterparts Ford (NYSE: F  ) and General Motors (NYSE: GM  ) , this company is far from frail. And it offers greater growth potential than even Japanese automakers Honda (NYSE: HMC  ) and Toyota (NYSE: TM  ) .

Tata is India's largest automaker, claiming the dominant market share of commercial vehicles. Its five-year compound annual revenue growth of 32.6% shows few if any signs of stopping.

In a country of 1.1 billion citizens, only a tiny fraction of citizens own cars. But as the populace grows more affluent, car ownership will become more common. In fact, 21% of Indian households are already planning to purchase a vehicle within the next three years, according to a recent CLSA study.

That figure is impressive on its own, but it might prove conservative. The impending unveiling of Tata's extremely affordable Rs 1 lakh -- also known as the $2,500 car -- could unlock an entire new demographic of potential customers.

The bear necessities
Many investors have failed to see Tata's remarkable value because of macroeconomic variables, which could continue to hinder business in the short term.

Interest rates on vehicle loans have lately run high in India, prompting a slight slowdown in car purchasing. Business has slowed, but it hasn't come to a screeching halt. In the most recently reported quarter, revenue still grew by 6.2% year over year.

In truth, this current slowdown is a double-edged sword, offering investors a chance to latch on to a long-term growth opportunity at an attractive price.

Now trading at...
Tata currently has a price-to-earnings ratio of almost 12, a dividend yield of 2.2%, and it's trading near its 52-week low. I peg the shares as undervalued, but don't just take my word for it. The Motley Fool CAPS community has ranked Tata as a five-star stock, with more than 1,200 bullish votes!

Fools, this is one bandwagon -- or station wagon -- you want to ride on. Head over to CAPS now and vote that you too believe this stock will outperform the market!

Ready for more Fool-light specials? Dash to the rest of the series here.

Read/Post Comments (0) | Recommend This Article (16)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

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: 540590, ~/Articles/ArticleHandler.aspx, 10/25/2016 12:07:03 PM

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...

Today's Market

updated Moments ago Sponsored by:
DOW 18,179.89 -43.14 -0.24%
S&P 500 2,144.93 -6.40 -0.30%
NASD 5,288.50 -21.33 -0.40%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 11:50 AM
TTM $40.71 Down -0.30 -0.73%
Tata Motors CAPS Rating: ****
F $11.80 Down -0.24 -1.99%
Ford CAPS Rating: ****
GM $31.42 Down -1.56 -4.73%
General Motors CAPS Rating: ***
HDB $70.69 Down -1.72 -2.38%
HDFC Bank CAPS Rating: ****
HMC $29.90 Up +0.21 +0.71%
Honda Motor CAPS Rating: ****
IBN $8.55 Down -0.16 -1.78%
ICICI Bank CAPS Rating: ****
TM $115.28 Down -0.17 -0.15%
Toyota Motor CAPS Rating: ***