Stock selection is critical in the auto industry.
U.S. auto sales dropped 20% in the second quarter as the industry continues to struggle with tight inventories. However, it’s not all doom and gloom in the auto industry these days. High-margin SUVs, trucks and luxury vehicles gained market share over cars in the first half of 2022, while electric vehicle sales rose 66% in the second quarter year over year. The auto industry is a dangerous place to invest in 2022, but the CFRA analyst team says there are still plenty of long-term buying opportunities among manufacturers, suppliers and dealers. Here are seven of CFRA analysts’ top car stocks to buy today.
Tesla Inc. (ticker: TSLA)
Electric vehicle maker Tesla and its controversial CEO, Elon Musk, are two of the most polarizing topics on Wall Street, but investors certainly can’t argue with Tesla’s growth numbers. Tesla reported 41.6% revenue growth in the second quarter. Analyst Garrett Nelson projects Tesla will grow revenue by 60% in 2022 and another 44% in 2023. Tesla shares trade at a steep premium to legacy automakers, at about 50 times forward earnings. However, Nelson says Tesla’s rare growth opportunity is worth the steep price. CFRA has a “strong buy” rating and a split-adjusted $418 price target for TSLA stock, which closed at $288.09 on Aug. 26.
Toyota Motor Corp. (TM)
Toyota Motor is a Japanese automaker that is one of the world’s largest car producers. Analyst Aaron Ho says the implementation of the Toyota New Global Architecture, or TNGA, has helped lower the cost of initial assembly plants by 40%. He says Toyota’s combination of model diversity, feature innovation and global distribution will help the company maintain growth rates in at least the low-single-digit range. In the longer term, Ho says, electrification initiatives will help drive sales growth. Ho projects 13% revenue growth in fiscal 2023 and 2024. CFRA has a “buy” rating and $200 price target for TM stock, which closed at $151.77 on Aug. 26.
Ford Motor Co. (F)
Ford Motor is the second-largest U.S. producer of cars and trucks. Nelson says Ford has finally turned the corner from an operational standpoint, and its restructuring efforts should help it reduce operating costs and increase productivity. In addition, Nelson says the Mustang Mach-E EV, the F-150 Lightning pickup and the rest of Ford’s early electrified models are generating positive sales momentum. He says Ford’s EV strategy is the “most prudent” among the major U.S. automakers, and he projects 19% revenue growth for Ford in 2022. CFRA has a “buy” rating and $18 price target for F stock, which closed at $15.41 on Aug. 26.
Honda Motor Co. Ltd. (HMC)
Honda Motor is another Japanese automaker that is one of the largest car producers in the world. In a difficult global auto market in 2022, Honda shares have held up relatively well. HMC stock is down 7.4% year to date, outperforming both the S&P 500 and all the other stocks on this list. Ho says Honda’s cost-cutting efforts, including shuttering underutilized plants, will propel near-term earnings growth for Honda. He projects 14% revenue growth in fiscal 2023 and another 6% growth in fiscal 2024. CFRA has a “buy” rating and $35 price target for HMC stock, which closed at $26.34 on Aug. 26.
Stellantis NV (STLA)
Stellantis is a Netherlands-based auto manufacturer formed by the merger of Group PSA and Fiat Chrysler in 2021. Nelson says Stellantis has value as a turnaround play given its opportunities to generate cost synergies and benefit from its post-merger scale. In the meantime, Nelson says Stellantis has a strong balance sheet and a higher degree of financial flexibility than many other automakers. He says Stellantis has navigated the auto market semiconductor shortage relatively well in 2021 and is on track to generate 15.4% revenue growth in 2022. CFRA has a “buy” rating and $18 price target for STLA stock, which closed at $13.61 on Aug. 26.
Nio Inc. (NIO)
Nio is a leading manufacturer of electric and smart vehicles in China. As difficult as the market has been for all automakers in 2022, regulatory crackdowns and concerns over potential U.S. delistings of Chinese stocks have made things particularly difficult for Nio. The stock is down about 37% year to date, making it the worst performer on this list. Fortunately, analyst Jian Xiong Lim says the sell-off is a buying opportunity for long-term investors given Nio is on track to generate impressive 74% sales growth in 2022 and 68% growth in 2023. CFRA has a “buy” rating and $35 price target for NIO stock, which closed at $19.92 on Aug. 26.
BorgWarner Inc. (BWA)
BorgWarner is a leading auto supplier and producer of components for drivetrain systems. Nelson says BorgWarner has an attractive risk-reward skew, trading at about 8 times his 2023 earnings estimate. In addition, he says its 2020 acquisition of Delphi was an excellent long-term strategic move. Nelson says he is particularly bullish on BorgWarner’s e-Propulsion and Drivetrain business segments. Finally, the company’s impressive free cash flow generation has helped it deleverage its balance sheet sooner than expected. Nelson projects revenue growth of 6% in 2022 and another 11% in 2023. CFRA has a “buy” rating and $50 price target for BWA stock, which closed at $37.97 on Aug. 26.
7 best car stocks to buy now:
— Tesla Inc. (TSLA)
— Toyota Motor Corp. (TM)
— Ford Motor Co. (F)
— Honda Motor Co. Ltd. (HMC)
— Stellantis NV (STLA)
— Nio Inc. (NIO)
— BorgWarner Inc. (BWA)
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Update 08/29/22: This story was published at an earlier date and has been updated with new information.