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Why Shares of Honda Motor Company Fell Over 12% in January

By John Rosevear – Feb 1, 2016 at 6:30PM

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Shares of the Japanese automaker fell in a broad-based selloff of auto stocks in January. But is Honda now a bargain, or is it cheap for good reason?

What: Shares of Honda Motor Company (HMC -1.80%) dropped 12.4% in January, opening the month at $30.86, and closed at $27.02 on January 29.

So what: Honda, along with most of its major global rivals, was caught in a broad sell-off of auto stocks that happened after analysts projected roughly flat growth for the U.S. new-vehicle market in 2016. That, plus growing concerns about a slowdown, or even a recession, in China, led to fears that the current growth cycle for autos might be coming to an end.

Honda is also suffering from the high costs of a series of huge recalls related to defective airbag inflators from longtime supplier Takata. The company has already recalled nearly 25 million vehicles around the world, and the recalls are expected to take a roughly $2.6 billion bite out of its earnings for fiscal 2016.

Now what: Honda's shares have been slumping for much of the last two years. That's only partly because of the Takata recalls: Honda has also been fending off concerns about its sluggish efforts in China and its so-so sales gains here in the United States. 

Still, I'd hesitate to call Honda a buy even at current prices. Its dividend yield is still a relatively meager 2.64%, and its own expectations for sales and profit growth are modest. It's still a strong and healthy competitor, but I think there are better options for investors picking over beaten-up auto stocks right now.

John Rosevear has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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