Honda, Toyota and Nissan Are All a Bargain

Hunting for bargains among the blue chips? Then consider the Big Three automakers, Duetsche Bank analyst Kurt Sanger says. The Japanese Big Three - that is.

Mr. Sanger initiated coverage on Toyota Motor Corp.(TM), Honda Motor Co. Ltd. (HMC) and Nissan Motor Co. (NSANY) this week, and all with "buy" ratings. He said that the overly bearish market is underestimating the company's efforts to grow outside traditional markets.

While contraction in the U.S. market is clearly a concern, global demand growth is expected to continue this year – somewhere in the range of 3.6% – driven by growth in emerging markets, he wrote in a research note.

He told clients to expect about 6.4% growth for the Japanese Big Three as a group in 2008 with nearly 90% of its unit sales growth coming outside traditional core markets of Japan, the U.S. and Western Europe.

His top pick among the group is Toyota, whose ¥7000 price target represents upside of 31%.

Mr. Sanger wrote:

The market is asking investors to pay a low multiple for a world-class brand, reasonable midterm growth, a consistent 40% total payout ratio and $0.33 on the dollar in cash and securities behind the share price. The company is least exposed to the U.S. as a percentage of earnings, is growing its share in emerging markets, and has investments in place to continue that growth.

His price target for Honda is ¥3,850 and ¥1,200 yen for Nissan.

TM vs. HMC vs. NSANY 1-yr chart: