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Andy Batts is my pen name. I am a full-time investor for the past ten years. I am a Bachelor of Science with a Major in Economics. At Seeking Alpha I offer in-depth research and analysis for undervalued stocks with significant upside potential. I also offer extensive healthcare stock analysis in... More
  • Survey Reveals Auto Industry Bullish: 3 Stocks Will Fly  0 comments
    Aug 10, 2012 12:23 PM | about stocks: F, GM, TM

    A new research reveals that the U.S. auto companies plan to expand facilities in coming months and hire new employees in response to growing revenues and strong balance sheets. A bullish business outlook for the United States auto market is driving expansion, according to a recent survey from professional services firm KPMG, based on interviews with 100 senior U.S. automotive executives.

    In the 2012 KPMG Automotive Industry Outlook survey, two-thirds say they've added personnel over the last year, and nearly three-quarters (72 percent) say their companies will continue to hire more domestic employees in the coming year - up significantly from 62 percent in KPMG's 2011 survey. Twenty-three percent of execs predict their companies' will increase personnel by more than 7 percent, 21 percent predict the range will be 4-6 percent, and 28 percent expect 1-3 percent headcount growth. Interestingly, when asked to predict when their company's U.S. headcount would return to pre-recession levels, nearly a third (32 percent) said they are already at pre-recession levels, or will be by the end of 2012.

    Click here for the full report.

    Executives' confidence is in line with data from the U.S. Bureau of Labor Statistics, which shows steady growth in auto industry employment over the last three years.

    The Global Picture in the First Half of 2012

    • In the United States the total market for light vehicles (passenger cars and light trucks) grew by almost 15 per cent to 7.25 million units in the first half of 2012.
    • In China, sales of passenger cars climbed by around 9 per cent to exceed 6.4 million units in the first half of 2012.
    • The Indian passenger car market is also in a buoyant mood. In the first six months sales were just under 1.5 million units, which was around 13 per cent above last year's level.
    • In Japan, passenger car sales soared by nearly 57 per cent to just over 2.5 million units in the first half of the current year.
    • In Russia the automobile business is maintaining its dynamism. Over the first half of the year the total market expanded by a good 14 per cent to over 1.4 million new vehicles.
    • The Brazilian market came to just over 1.6 million new vehicles in the first half-year, yet this only equaled the previous year's level.
    • In Western Europe nearly 6.5 million new cars were registered (-7 per cent) in the first half of 2012.
    • In the new EU countries, new registrations of passenger cars increased by almost 5 per cent to 404,000 units in the first six months of 2012.

    (click to enlarge)

    (Source: German Association of the Automotive Industry)

    Three Auto Stocks Have Significant Upside Potential

    Stock prices of the leading auto manufacturers have been undergoing a bear phase for the last several months as auto stocks tend to be oversensitive to the macroeconomic changes. Auto industry is known to be the barometer of macroeconomic conditions. It seems that the bullish outlook of the auto industry is also felt in the stock market as they are near all time highs.

    Toyota raised its full year production forecast 23% to a record 9.76 million vehicles, at a time when its industry peers have posted mixed results. Although Chrysler and Nissan posted gains in the most recent quarter, Ford and General Motors slid and lost market share, due to ongoing troubles in Europe and sluggish Asian growth.

    This is the time to accumulate the beaten up auto stocks as the worldwide macroeconomic headwinds tend to resolve backed by the availability of easy liquidity. We've picked up three auto stocks that have significant upside potential from the current levels.

    1. Ford Motor

    Ford Motor Co. (NYSE:F) expects higher profit in the United States in 2012 compared with 2011 due to strong product line-up, including the recently launched Escape and to-be-launched Fusion in the second half of the year. The company also remains committed to maintain its competitive cost structure in North America.

    The company expects results to improve in the second half of the current year driven by favorable volume and mix, as the company will benefit from enhanced capacity in China and Thailand and the launch of all-new Focus and Ranger. (Read more)

    The stock is currently trading near $9.30 and we expect the stock to trade near $14 in the medium-term.

    2. General Motors

    General Motors Co. (NYSE:GM) has presence in almost 120 countries and has facilities in 31 countries. It had to seek bankruptcy protection in 2009 due to unfavorable economic conditions and a rapid decline in sales. However, the automaker recouped its sales and earnings by banking on the emerging markets and improved cost structure.

    GM had cash and cash equivalents of $22.18 billion as of June 30, 2012 compared with $16.07 billion as of December 31, 2011. During the first half of the year, the company had a net cash flow of $6.03 billion from automotive operations, up from $4.37 million in the year-ago period. (Read more)

    The stock is currently trading near $20.30 and we expect the stock to trade near $28 within the next 12 months.

    3. Toyota Motor

    Last Friday, Toyota Motor Corp. (NYSE:TM) posted its highest earnings per share in four years and raised it guidance for the rest of the year. The Japanese automaker, which recently reclaimed the top automaker spot from General Motors last month, bounced back from a painful 2011.

    Toyota expects the yen to hold steady against the U.S. dollar at 80 yen per dollar, and the euro to remain volatile near 101 yen per euro. To offset the strong yen, Toyota is increasing production capabilities outside of Japan. Last month, Toyota announced that it would shift a part of its Lexus SUV production to Canada, and its Yaris production from France to the United States. (Read more)

    During the quarter, Toyota posted gains in all of its regions, including Europe. However, Toyota is less exposed to Europe than its western rivals. Stock price of Toyota is expected to outperform other auto stocks in the long-term. It is currently trading near $81, and we expect the stock to touch $125 in the medium-term.

    Disclosure: I am long F, GM.

    Themes: long-ideas Stocks: F, GM, TM
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