While it's still early in the year, the ever-changing field of stock trading is as alive as ever. One place to seriously consider investing is in the automotive sector. I selected five auto makers facing similar headwinds such as increasing input costs and stiff competition, while also experiencing positive drivers such as increased business from corporate fleets, and increased demand for vehicles in Europe. In this article, I will discuss their current positions within the market, as well as where I expect them to be later in 2012.
Ford Motor Company (NYSE:F)
With a rise in sales of 7.4% in January, the Ford Motor Company seems to be in a relatively good position, further cemented by a gradual rise in stock price up 11% from three months ago. With a current share price nearing $13, the company appears to be continuing to pull out the slump it was in during the end of the third quarter last year. Heading into the fourth-quarter, Ford pulled out of this slump by posting record profits, thanks to a one-time tax allowance for vehicle buyers.
The stock of Ford currently has a dividend yield of 1.57%, meaning that the cash flow of the stock is a reliable investment. However, in my opinion, with such a low share price, the actual dividend to be gained hangs on the low side when compared to the other stocks I will be discussing. Among the five companies in this article, Ford has the lowest overall share price, which boils down to Ford still being beat out by competitors despite having a profitable fiscal quarter.
As for what I expect the company to do for the rest of the fiscal year, I agree with the market estimate that the stock will likely drop as profits from the previous tax allowance fade.
Toyota Motors (NYSE:TM)
Despite the high share price, Toyota is still in a slump after two years of low profits, due to the well known recalls followed by vehicle shortages after the earthquake that rocked Japan. Toyota found a niche market in the United States by broaching into the area of rental cars and corporate fleets, two areas the company had stayed away from in the past. This new market area allowed the company to post an increase of 7.5% in US sales. It is worth nothing, in my opinion, that had Toyota not broached into this area, that last month's sales would have been under 1%. This is further reinforced by the company only posting a 0.2% sales growth in 2011.
When compared to other stocks, Toyota has an astronomical share price of $84. Despite the high number, the current share price is lower than what it was this time last year. With a projected yield of only 1.10 on the share, the profit of the investment is slim at face value. There is room for money to be made with Toyota in my opinion, as the company recovers from the two year slump.
As for the rest of the fiscal year, there seems to be difference of opinion among analysts, as half say the stock should be held, while half are saying to buy. In my opinion, with Toyota boasting a sales increase due to the corporate fleet, buying this share for the short turnaround can be considered a possible option for investors.
Tata Motors (NYSE:TTM)
Tata has some celebrating to do as it has posted an increase of 21% in units sold in January, coupled with posting a 41% net jump in Q3 of the last fiscal year. I believe this stock should be watched closely. Currently sitting at $28 a share with a projected yield of 1.57%, this share is another investment that seems profitable at face value.
These numbers must be taken with a grain of salt in my opinion, as the company recently announced an overall increase of price for all their vehicles to help combat the higher input costs the company is facing. This leads me to believe that the share value will not hold, and it may slip closer back to the lower values seen in December and January.
This is a stock that is harder to predict, as it fluctuated wildly over the past year. But I believe that the company has begun to recover and get its act together for 2012. With the company boasting an overall increase in profits of 3.2%, but having almost no change in the recent share value, the yield of this share is questionable at best. Currently, at $20 a share with a yield of 1.45, I believe this stock is a buy, as the share price has been on a steady rise since last year.
Honda Motor Company (NYSE:HMC)
Honda had a hard time last year as its stock gradually dropped in price over the entire fiscal year. The stock has jumped back up to a respectable number and continues to climb again as the company plans to double its production of vehicles in Europe. Currently sitting at $37 a share, I believe that if you are not already holding shares, now is the time to get in.
I have discussed the stocks of five of the most promising automotive companies, as well as offered my opinion on how to read the figures. To recap, despite Ford being at a low share value, I don't think the share will rise too much as the company is posting lower numbers after the initial tax buying. I believe now is the time to buy Toyota, as the market seems to be showing more faith in the company after the mechanical failures of two years ago. Tata announced a flat increase in their vehicle pricing, which makes me doubt that the stock will increase if it maintains its current value at all. Nissan is on the rise again with a high yield, so I recommend buying this stock. I also recommend buying Honda, as it is on a similar page.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.