While many investors in the United States may not be immediately familiar with the name Stellantis (STLA 1.75%), they are almost certainly familiar with some of the companies within in its portfolio, Jeep, Dodge, and Ram, which sell some of the most popular vehicles in the United States. Stellantis is also home to some of Europe's largest automakers, such as Peugeot, Opel, and Fiat, and the luxurious Maserati. Stellantis came into being in early 2021 when Fiat Chrysler officially completed its merger with PSA Group (the parent company of Peugeot, Opel, and others). The combined company is the world's fourth-largest auto manufacturer by volume. Here are four reasons that the stock looks like a compelling investment opportunity. 

Family driving car on road trip

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Strikingly low valuation 

Even in the broader auto space, where many auto manufacturers are trading at depressed valuations because of concerns about supply chain problems, the semiconductor shortage, and the war in Europe, Stellantis stands out as cheap. These concerns seem more than accounted for, as shares trade for just three times earnings, which is one of the cheapest valuations investors will come across. For context, top U.S. automakers like Ford (F) and General Motors (GM 0.44%) trade at price-to-earnings multiples of 4.5 and 6 respectively, both of which also represent a steep discount to the broader market. Tesla (TSLA 4.34%), in a class of its own in terms of valuation, sports a P/E multiple of about 90 . This company is not a melting iceberg with shrinking revenues -- in fact, for fiscal 2021, sales increased by 13.6% compared to 2020. Stellantis recently reported that for the first quarter of 2022, a period that included all these challenges, revenue increased by 12% year over year from the first quarter of 2021. While total shipments were down because of the semiconductor shortage, the company was able to offset lower unit volume with higher prices. When that bottleneck clears up, it should bode well for Stellantis. The company also has a strong balance sheet with more cash than debt, so this isn't a case of a cumbersome debt level dragging down a stock's valuation.

Solid returns 

In addition to its undemanding valuation, Stellantis also stands out for its returns to shareholders. Shares currently yield 7.5%, a compelling payout. Stellantis is targeting a dividend payout ratio of 25-30%. It must be noted that this is not a quarterly payout such as many U.S.-based investors are accustomed to -- the company has been paying out an annual dividend, and the total payout will change from year to year based on the performance of Stellantis' business. However, with the company targeting paying out 25-30% of its free cash flow to shareholders, it seems that Stellantis will continue to be a viable choice for dividend investors. Stellantis is also using share repurchases to return capital to shareholders, with a plan to retire up to 5% of the shares outstanding by 2025.

Electric surge

Stellantis is committed to becoming a major player in the electric vehicle (EV) revolution. The company's bold "Dare 2030" plan outlines its goal of having EVs make up 100% of sales in Europe and 50% of sales in North America by 2030. The company says that it will have 25 new all-electric models in the United States by 2030 and plans to roll out an electric Jeep SUV in 2023 followed by an electric Dodge muscle car and Ram pickup truck in 2024. One way that Stellantis' electrification strategy is different from that of its peers is that it will still release hybrid, plug-in vehicles that combine electric batteries with traditional ICE engines. This seems like a prudent strategy for the next several years, as the infrastructure isn't in place yet for all vehicles to go electric. I also like the fact that Stellantis is investing in battery technology, partnering with LG Energy Solution to invest $5 billion CAD in a lithium battery production facility in Canada and a joint venture with Samsung SDI in Indiana. Having its own batteries could help to protect Stellantis from future supply chain shortages and price increases in a future where everyone is competing for batteries. On a related note, Stellantis recently announced a deal with Hon Hai Precision (HNHAF 23.13%) (also known as Foxconn) to develop more advanced semiconductors, which could help it to mitigate future chip shortages.  

Strong leadership

Stellantis has a strong leader at the helm in CEO Carlos Tavares, who is widely credited with cutting costs at PSA Group and bringing France's largest automaker back to profitability. He also led Peugeot's takeover of Opel and helped to revitalize the German company. Tavares pushed for the merger with Fiat Chrysler and oversaw its completion, touting the move as one that would create 5 billion euros in annual synergies within five years. It seems that Tavares and Stellantis are well ahead of schedule, and they now expect to achieve these synergies by 2024. With 14 brands in the Stellantis wheelhouse and the company's global scale, Tavares has the optionality to expand popular and higher-end brands like Jeep, Maserati, and Alfa Romeo into new markets, and he can also pare off some of the weaker brands if need be.

Looking ahead 

Stellantis looks like a strong investment opportunity for the road ahead. Investors buying now are starting off with a very low valuation and attractive dividend payout. The company's goal is to double revenue by 2030, and it is already ahead of schedule on its goal of achieving $5 billion of annual synergies from its merger. Stellantis is in good hands with CEO Carlos Tavares, and the company is home to a compelling and diverse portfolio of brands.