Car stocks -- shares of the big global automakers -- are drawing a lot of attention right now. Many of these companies have seen sales and profits grow sharply over the last few years, as sales have boomed.
But the stock prices haven't kept pace. There's a reason for that: Wall Street is concerned that auto sales might be near a cyclical peak.
It's a legitimate short-term concern, but the long-term trends are clear: Growth in places like China and India should propel the best-positioned global automakers to sustainable growth well into the next decade. Patient investors who buy now and reinvest dividends could be well-rewarded. And at current prices, the dividend yields on some of these stocks are very impressive.
So, which are the best car stocks in the group? Here are six worth a closer look.
|Company||Price to Earnings Ratio||Dividend Yield|
|Ford Motor Company||6.34||4.42%|
|Fuji Heavy Industries||6.91||3.74%|
General Motors (NYSE:GM) has come a long way since its 2009 bankruptcy. Under CEO Mary Barra, GM is solidly profitable, with plenty of cash, modest debt, and very strong quality ratings.
But Barra isn't satisfied: She has a plan to boost GM's profit margins significantly over the next several years, while keeping GM at the forefront of advanced technology like electric cars and self-driving systems. Her plan is already working, and that makes GM worth a closer look -- as does its cheap valuation and strong dividend yield.
Ford Motor Company (NYSE:F) was famously brought back from near-death under the leadership of Alan Mulally in a story that will be taught in business schools for decades to come. Mullally has since retired, but his hand-picked successor, Mark Fields, has the Blue Oval firing on all cylinders. Ford is making hay from the global SUV boom, but it isn't neglecting fuel-efficient hybrids and small vehicles, and its technology is advancing quickly. Profits are high, debt is low, the stock is cheap, and the dividend should be sustainable even if the economy turns down for a while.
Fuji Heavy Industries (NASDAQOTH:FUJHY) isn't a household name in the U.S., but you've heard of its products: Fuji Heavy is the parent company of Subaru, the maker of the much-loved Forester and Outback crossovers. It's benefiting more than most from a global shift toward "crossovers," vehicles that blend SUV and car-like attributes: Even Subaru's sedans are arguably crossovers, with all-wheel-drive and a reputation for all-weather durability.
Fuji Heavy is a small company by auto-industry standards. But it's a very well-run one, with astute management, careful cost controls, and a good dividend. It may hit some exchange-rate turbulence in the near term, but for a long-term-minded Fool, there's a lot to like, here.
BMW (NASDAQOTH:BAMXF) and Daimler (NASDAQOTH:DMLRY) are both benefiting from strong worldwide demand for luxury vehicles, particularly German ones. (Daimler is Mercedes-Benz's corporate parent.) The two are fierce rivals, but they have a lot in common: Both have healthy balance sheets and are using strong profits to make big investments in advanced technology, moving aggressively to match or beat Tesla Motors with electric cars and self-driving systems.
There's a lot to like at both, but Daimler might be the slightly better bet right now because of its higher dividend yield and aggressive electric-vehicle development programs.
Toyota (NYSE:TM) is the world's largest automaker, and one that sports an unusually strong (for an auto company, at least) credit profile along with a very strong and careful management team. That team has Toyota adeptly keeping pace with the industry's fast-moving technological changes while continuing to lead the world in categories like hybrid cars -- and turn out the carefully honed products that have drawn a huge and loyal following all around the world.
In Japan, Toyota is seen as a blue chip, a safe if unexciting investment that pays a modest dividend. That's a fair characterization most of the time, but at current prices, Toyota is also something of a bargain. For us, that makes it a little more exciting.
It'll never be a ten-bagger on price alone, but that dividend -- backed up by Toyota's rock-solid balance sheet -- along with steady market gains should add up nicely over time.