A Few Solid Reasons Why Toyota Should Be In Your Portfolio

| About: Toyota Motor (TM)

The good times continue to roll for Toyota Motor (NYSE:TM). In 2012, Toyota has regained its position as the world's largest automaker after slipping to third position behind General Motors (NYSE:GM) and Volkswagen AG (OTCPK:VLKAY) in 2011. This year, Toyota has again managed to keep the crown of the world's top selling car maker by beating General Motors and Volkswagen. In the first nine months of 2013, Toyota sold a total of 7.412 million vehicles. During the same period, General Motors and Volkswagen sold 7.25 million and 7.03 million vehicles, respectively.

Toyota shares have gained 37% this year. General Motors shares are up about 28%, while Volkswagen has gained only 10%. In China, the world's largest auto market, Toyota's sales were affected due to anti-Japanese sentiment that flared up last year over territorial disputes. In the three months to September, Toyota's China sales rose 11% to about 220,000 vehicles. During the same period, General Motors sold 745,026 units, a gain of 12% while Volkswagen delivered more than 800,000 vehicles in China.

Toyota's competition with General Motors and Volkswagen will remain intense. It would be difficult for Toyota to beat both General Motors and Volkswagen in China because of their huge market share in the country. In 2013, Toyota is planning to sell 900,000 vehicles in China. General Motors expects to sell 3 million vehicles, while Volkswagen intends to sell 3.2 million vehicles in China this year.

Toyota is the leading manufacturer of hybrid vehicles. Over recent years, demand for Toyota's Prius hybrid car is strong due to high gasoline prices. Hybrid cars emit less CO2 emission. Nowadays customers are more willing to buy hybrid cars because they are more aware of the negative effects (air pollution) caused by cars. Other automakers are trying to bring more hybrid cars to the market, but customers are not much impressed with the U.S. hybrid technology as they are with that of Toyota models. Toyota understands that environmental friendly cars are the necessity nowadays. By the end of 2015, Toyota plans to present 15 new or improved hybrid vehicles that will help the company to satisfy varying consumers' tastes and needs.

Now customers are shifting towards fuel efficient cars because of increasing fuel prices, creating more opportunities for Toyota's hybrid cars. There is a possibility that fuel prices will increase in the future, as a result, hybrid cars will become more attractive to cost conscious customers. Global sales of hybrid and plug-in electric vehicles are expected to reach 6.6 million annual units by 2020. The U.S. car consumers have very strong liking for Toyota's hybrid vehicles. The company accounts for more than 60% of U.S. hybrid sales and 70% of the nearly 3 million hybrids on U.S. roads today. Toyota intends to sell 5 million hybrid vehicles in the U.S. by the end of 2016. North America is expected to be the largest plug-in hybrid market in the world.

Toyota's main markets are Japan, US and Europe. The company plans to expand into the emerging markets. Toyota is spending significantly in Indonesia, India and Brazil to boost production. By 2015, Toyota plans to generate 50% of its revenue from emerging markets, a 5% increase from 2011.

For the year ending in March 2014, analysts are expecting Toyota to announce 2.4 trillion yen ($24.7 billion) in operating profit. The Weaker Japanese Yen has a positive impact on Toyota's earnings. Products of Japanese companies including Toyota become more attractive to foreign buyers when the yen weakens. Weak yen enables Toyota to compete with its rivals General Motors and Volkswagen. Due to currency advantage, Toyota can cut the prices of its vehicles. Toyota is predicting to sell 9.96 million vehicles in the current fiscal year, out of which 6.8 million are expected to be sold outside the Japan. If the yen continues to weaken, the company's bottom line will continue to rise.

Bottom Line

Competition in the auto industry is increasing. Toyota's strong brand name and innovative culture will allow the company to expand in the future. The weak yen will continue to benefit the company in the future. Investors interested in auto stock should consider Toyota. In my opinion, Toyota will provide its shareholders with nice, steady returns over the next few years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.