STLA: 3 Auto Stocks Setting up for Potential Gains

Despite prevailing macroeconomic headwinds, the growing shift toward EVs driven by government incentives, strong consumer demand for new vehicles amid easing supply-chain bottlenecks, and growing adoption of cutting-edge technologies are boosting the automotive industry’s outlook.

Given the industry’s bright growth prospects in the industry, it could be wise to invest in fundamentally sound auto stocks Stellantis N.V. (STLA), AB Volvo (publ) (VLVLY), and Rolls-Royce Holdings plc (RYCEY) for solid returns.

Despite concerns about rising interest rates and inflationary pressures, US new-vehicle sales for the first half of 2023 are estimated to have increased 12.3% year-over-year to 7.69, above the forecast of 7.65 million, according to Cox Automotive. New vehicle sales have been more robust than anticipated due to strong demand and improved new vehicle inventory levels.

Following a surprisingly solid first half, Cox Automotive raised its full-year, new-vehicle sales forecast to 15 million this year, up from 13.9 million in 2022, based on estimates from our Kelley Blue Book data sets.

The growing global transition to EVs further positions the automotive industry for exponential growth in the foreseeable future. Favorable government policies, automaker commitments to EVs, and rising climate change concerns would drive consumer demand for electric vehicles worldwide.

For instance, the Infrastructure Investment and Jobs Act, signed into law in November 2021, allocated nearly $7.50 billion to building a charging network nationwide. Also, the legislation included funding to upgrade the country’s power grid, expanding domestic battery production and recycling capacity.

On the consumer side, tax credits boost demand. For example, the Inflation Reduction Act of 2022 introduced a tax credit of up to $7,500 for the purchase of new EVs until 2032. For the first time, tax credits could also be used for purchasing used EVs.

Cox Automotive reported that about 300,000 new EVs were sold in the US during the second quarter of this year, a record for any quarter and up 48.4% from the same quarter of 2022,

REVISED: 2023 STOCK MARKET OUTLOOK

As per a report by Precedence Research, the global EV market size is expected to grow at a CAGR of 23.1% during the forecast period to reach $1.72 trillion by 2032.

Furthermore, the rising integration of digital technologies like the Internet of Things (IoT), artificial intelligence (AI), and blockchain is revolutionizing manufacturing processes in the automobile industry. For instance, predictive maintenance using IoT sensors reduces downtime, while AI-driven analytics optimize production efficiency.

Given the industry’s promising prospects, quality auto stocks STLA, VLVLY, and RYCEY could be solid additions to your portfolio.

Let’s take a closer look at the fundamentals of these stocks:

Stellantis N.V. (STLA)

Headquartered in Hoofddorp, the Netherlands, STLA designs, manufactures, distributes, and sells automobiles and light commercial vehicles, engines, transmission systems, and related products. The company’s product offerings are marketed under the Abarth, Alfa Romeo, Chrysler, Fiat, Jeep, Ram, Opel, Lancia, and Comau brand names.

On August 24, STLA announced the expansion of its SPOTiCAR program to the US. This initiative aims to streamline vehicle purchases for individuals and businesses through digital tools and specialized dealerships. Such a strategic move would enhance customer satisfaction and willingness to pay for the company’s products in the future.

On August 23, Stellantis completed an agreement with AGI, a leader in nationwide branded infrastructure programs for more than 50 years, to support national US dealership electrification and EV charging capabilities. These moves are expected to help STLA fulfill its Dare Forward 2030 strategy to achieve 50% battery-EV sales by the end of this decade.

This strategic partnership with AGI would help STLA boost its revenue stream.

On August 8, STLA launched the bproauto aftermarket parts brand in North America, a new line offering high-quality, competitively priced replacement parts. With the introduction of this new parts business, the company is expected to enhance customer experience, driving its growth and profitability.

For the first six months that ended June 30, 2023, STLA’s net revenues increased 11.8% year-over-year to €98.37 billion ($106.18 billion). Its non-GAAP operating income grew 30.4% from the year-ago value to €13.54 billion ($14.61 billion). Its non-GAAP profit before taxes increased 36.8% year-over-year to €13.61 billion ($14.69 billion).

In addition, the company’s non-GAAP net profit rose 37.2% year-over-year to €10.92 billion ($11.79 billion).

Analysts expect STLA’s EPS in the fiscal year (ending December 2023) to be $5.70, registering a growth of 3.2% year-over-year. Also, the consensus revenue estimate of $205.16 billion for the ongoing year reflects a 7.8% year-over-year improvement. Moreover, the company surpassed the consensus revenue estimates in all the trailing four quarters.

Shares of STLA have gained 24.6% year-to-date and 28.2% over the past year to close the last trading session at $18.18.

STLA’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

STLA has an A grade for Value and a B for Sentiment, Stability, and Quality. It is ranked #2 out of 57 stocks in the Auto & Vehicle Manufacturers industry.

In addition to the POWR Ratings we’ve stated above, we also have STLA’s ratings for Growth and Momentum. Get all STLA ratings here.

AB Volvo (publ) (VLVLY)

VLVLY, headquartered in Gothenburg, Sweden, manufactures and sells trucks, buses, and related heavy industrial equipment in Europe, North America, South America, Asia, and Africa. The company also offers financing, insurance, rental, spare parts, preventive maintenance, service agreements, and assistance services.

On June 20, VLVLY and Heidelberg Materials, one of the largest building materials companies in the world, announced a partnership to address carbon emissions in construction. They plan to explore solutions using electric vehicles and associated services to tackle loading and hauling challenges in the construction industry and reduce its carbon footprint.

VLVLY could effectively address climate change across the value chain and drive the company’s growth through this partnership.

On May 22, VLVLY announced it would supply 1,000 electric trucks to Holcim, a major global building solutions provider, by 2030. This marked the largest commercial order for Volvo electric trucks. Initial delivery of 130 electric Volvo FH and FM trucks would be made in 2023-2024 to Holcim’s European operations. Such deals would boost the company’s profitability.

During the second quarter of fiscal 2023, VLVLY’s net sales increased 18.4% year-over-year to SEK140.82 billion ($12.73 billion). Its gross income rose 35.5% year-over-year to SEK38.92 billion ($3.51 billion). Its adjusted operating income grew 58.1% from the year-ago value to SEK21.73 billion ($1.97 billion).

Furthermore, the company’s income for the period grew 2.8% year-over-year to SEK10.82 billion ($978.29 million), and its EPS was SEK5.30, an increase of 3.1% over the previous year’s quarter. Also, its operating cash flow from industrial operations rose 74% year-over-year to SEK12.55 billion ($1.13 billion).

Analysts expect VLVLY’s revenue for the fiscal year (ending December 2023) to increase 3.7% year-over-year to $47.83 billion. The company’s EPS for the current year is expected to grow 50.7% from the prior year to $2.49. Also, the company topped the consensus revenue estimates in three of the trailing four quarters.

VLVLY’s stock has increased 11.6% year-to-date and 24.1% over the past year to close the last trading session at $19.73.

VLVLY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.

VLVLY has an A grade for Stability and a B grade for Growth and Quality. It is ranked #10 among 57 stocks in the Auto & Vehicle Manufacturers industry.

Click here to see the other ratings of VLVLY for Value, Sentiment, and Momentum.

Rolls-Royce Holdings plc (RYCEY)

RYCEY, headquartered in London, the United Kingdom, is an international industrial technology company that operates in four segments: Civil Aerospace; Defence; Power Systems; and New Markets. The company manufactures aerospace and aviation components, propulsion systems for various industries, small VLVLYular reactors, and new electrical power solutions.

On June 19, RYCEY introduced a small gas turbine, a component of a turbogenerator system. It comprises advanced features such as electric vertical take-off and landing and an on-board scalable power source. Such technological advancements would enable the aircraft that houses this engine to extend its range of operations.

On May 18, RYCEY successfully tested its UltraFan technology demonstrator, which showed a 10% efficiency improvement over the Trent XWB engine. The demonstrator features an Advance3 core architecture, carbon titanium fan blades, and a geared design for future high-performance and efficient engines.

For the first half of 2023, RYCEY reported revenue and gross profit of £6.95 billion ($8.74 billion) and £1.51 billion ($1.90 billion), up 31.1% and 60.7% year-over-year, respectively. Its operating profit was £673 million ($846.40 million), an increase of 438.4% from the prior-year period.

Furthermore, RYCEY’s profit before taxation was £524 million ($659.00 million), compared to a loss of £111 million ($139.60 million) for the corresponding period of the previous year. Its earnings per share came in at £4.90, compared to a loss per share of £2.24 in the same period of 2022.

The consensus revenue estimate of $18.22 billion for the fiscal year (ending December 2023) represents a 19.4% increase year-over-year. The consensus EPS estimate of $ 0.10 for the same period indicates a 320.3% improvement year-over-year.

Over the past six months, the stock has gained 48.5% and 120.9% year-to-date to close the last trading session at $2.54.

It’s no surprise that RYCEY has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.

RYCEY has a B grade for Quality, Momentum, Value, and Growth. Out of the 57 stocks in the Auto & Vehicle Manufacturers industry, it is ranked #5.

To see the other ratings of RYCEY for Stability and Sentiment, click here.

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STLA shares were trading at $18.27 per share on Monday morning, up $0.09 (+0.50%). Year-to-date, STLA has gained 28.66%, versus a 16.69% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...