I like cars. I like value investing. I've made quite a bit of money in cyclical stocks over the years.
Given the state of the global auto industry at the moment -- "smoldering wreckage" is a phrase that comes to mind -- you'd think I'd be buying up distressed auto stocks like crazy, or at least combing through all of the major players looking for strength.
But I can't make myself do it. It's ugly out there. With one possible exception, I see too much risk and not enough reward.
The home front
That said, I'm less inclined to suggest it today. Although I don't think Ford is likely to fail, it may be a while before its stock makes much more progress -- it's by no means out of the woods yet.
Off to Japan?
Berkshire Hathaway vice chairman Charlie Munger isn't the only one who thinks Toyota
It's tempting to think there's value there, but while Honda and Nissan are probably worth keeping an eye on, I think the Japanese producers -- and probably Korea's Hyundai as well -- are looking at several years of little to no growth. On the cheap end of the market, they're going to see more and more competition from domestic Chinese and Indian firms in those (and other) emerging markets. On the big-margin luxury-car end, there are fewer and fewer buyers. Your neighbor who tapped his home equity to buy that spiffy Lexus probably isn't going to be trading up anytime soon.
Et tu, Europe?
Everybody else, and the one worth looking at
How about the rest of the world? China has dozens of car manufacturers at the moment, just as the U.S. did at the beginning of the 20th century. I predict that there will be at most three or four big players in 10 to 15 years, and while I can make some educated guesses as to who they'll be, I'm hardly confident enough to bet the farm. There are a few that might be worth making a small bet on: Dongfeng Motor and SAIC Motor are two that are publicly traded, though not on U.S. exchanges. But frankly, if you're going to invest in emerging Chinese companies, there are better industries to consider.
And that one possible exception I mentioned at the beginning? Take a look at India's Tata Motors
How so? In July, the company will be launching what it claims is the world's cheapest car, the Tata Nano, which starts at about $2,600 in New Delhi -- and which has already generated more than 200,000 fully paid advance orders. The buzz on this one in the emerging world is tremendous, and I'll be shocked if Tata doesn't sell millions of the little things.
What's more, a quick look at Tata's numbers suggests a classic value opportunity. Long-term debt-to-equity is a soothing 0.72, price to book is 2.11, and it even pays a decent dividend -- the yield is about 3.70% at current prices. Motley Fool CAPS players have given Tata a full five stars -- they smell a bargain. Take a look, see if you agree -- and let me know what you think.
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Berkshire Hathaway is a Motley Fool Inside Value recommendation and a Motley Fool Stock Advisor pick. Nissan Motor is a Motley Fool Global Gains selection. The Fool owns shares of Berkshire Hathaway. You can try any of our Foolish newsletters free for 30 days.
Fool contributor John Rosevear believes drastic change was inevitable but still hopes that the Corvette survives GM's impending implosion. He owns Ford preferred shares, but has no position in any of the other companies mentioned. The Motley Fool has a disclosure policy.