Which Automaker Will Ride Past The Rest?

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 |  Includes: F, GM, HMC, NSANF, TM, VLKAY, VOLAF
by: David Zanoni

The automakers have faced some tumultuous times in the past few years. The 2008 financial crisis led to a bailout of General Motors (NYSE:GM) and caused Ford’s (NYSE:F) stock to drop below $2 per share. Honda (NYSE:HMC) and Toyota (NYSE:TM) were hit hard by the earthquake in Japan and the flooding in Thailand.

Are any of these automakers worth investing in? Let’s look at them side by side to see if any of them are investment worthy.

Automaker

Forward

PE Ratio

PEG

Cash

Debt

Operating

Cash Flow

Profit

Margin

Debt to

Equity

5 Year Projected

Annual Earnings Growth

GM

5.59

0.44

32B

11.7B

5.2B

6.6%

25.62

12.87%

Ford

6.48

0.82

20.6B

95.1B

11.26B

5.06%

1579

7.13%

Toyota

14.51

1.01

39.6B

148B

16.7B

1.16%

107.7

24.1%

Honda

7.82

-10.5

17.1B

48.7B

11.43B

2.75%

85.1

- 1.5%

Volkswagen

5.44

0.07

36.4B

87B

10.49B

10.87%

106.07

48.8%

Nissan

11.43

11.19

11.4B

48.5B

8.94B

3.34%

115.35

5.5%

Volvo

9.01

0.90

4.31B

19B

3.77B

5.47%

155.94

9.9%

Click to enlarge

I’m not really a big fan of the automakers, but I thought that they deserved a look. We’re looking for double-digit growth that can beat the returns of the S&P 500 index. It looks like GM, Toyota, and Volkswagen (OTCPK:VLKAY) have the projected growth that can beat the market over the next five years.

Volkswagen looks like the standout among the rest. It has the best valuation among the automakers. The stock price of $30.90 is trading under its book value per share of $33.67. Volkswagen is the only automaker with a double digit profit margin – the others don’t even come close.

Volkswagen’s 5 year annual projected earnings growth of 48.8% doubles Toyota’s projected earnings growth. However, Volkswagen’s earnings might be a little choppy over that time period. It is expected to have 133% earnings growth this year, but suffer a loss of 39.4% earnings growth next year.

Volkswagen has plans to meet these earnings expectations by selling more vehicles than any other automaker in the world by 2018. The majority of its sales increases should come from the Volkswagen brand. Its other brands include: Audi, SEAT, Skoda, Bentley, Bugatti, Lamborghini, and Scania. The luxury brands among the group will benefit from the "top 1%" income earners. So, for those of you who want to get a piece of the earnings from the "top 1%," you can buy stock in Volkswagen.

Toyota looks like the second top choice among the automakers in terms of potential earnings growth. In October, Toyota raised its outlook for its fourth quarter ending in March 2012. Toyota said in October that it expects revenue to be 3.4% higher and net profit to be 40% higher than what was originally expected for its fourth quarter. However, Toyota withdrew those projections in early November stating that the Thai floods are a threat to production.

Despite its setbacks due to the Japan earthquake and Thai flooding, Toyota’s longer term outlook still remains bright. Toyota still remains the most valuable automaker with a market cap of $113 billion. The Thai floods mostly affect Toyota’s parts suppliers, so Toyota may fair better than it is currently indicating.

General Motors also looks good in terms of projected earnings growth. It’s also well valued with low PE and PEG ratios. Its five year projected earnings growth of 12.87% should beat the market’s projection of 11.06% over the same period.

Ford, Nissan (OTCPK:NSANF), and Honda have earnings projections that are significantly below those of the S&P 500, therefore their stock prices will most likely be below average over the next five years. Volvo’s (OTC:VOLAF) earnings projections are also shy of the S&P 500, but it should see better performance than Ford, Nissan, and Honda.

Volkswagen has an aggressive plan to be the top selling automaker by 2018. If it executes properly and can maintain high quality along with high growth, then I feel that it will significantly outperform the market over the long haul.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.