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What are we looking for?

Blue-chip automakers with undervalued stock prices.

The screen

Tesla Inc. does a great job marketing itself as the leader in electric power vehicles, yet the auto industry’s more established brands are beginning to offer vehicles with excellent battery range and advanced technology. The industry’s leaders also continue to produce solid gas-powered vehicles, still a key focus as they continue to generate most of the revenues.

With the effects of the pandemic beginning to wane, July U.S. auto sales are expected to show a slight improvement from a year ago and RBC Equity Research sees the industry slowly beginning to rebound by year-end. With signals that the industry may be returning to normal, now is a great time to consider evaluating investment opportunities in U.S.-listed automakers.

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  • First, we screen for U.S.-traded names with a market cap exceeding US$5-billion.
  • Next, we screen for companies in the industry with undervalued stock prices. We use the StarMine Intrinsic Valuation (IV) Model, screening for companies with a score of 70 or higher. The StarMine IV Model is based upon a dividend discount model that uses forecasts about the company’s earnings, combined with proprietary adjustments to project future dividends. These dividend flows are then discounted back to the present time to arrive at an intrinsic value/fair price for the stock. The model ranges from zero to 100, with 100 being the best possible score.

More about Refinitiv

Refinitiv, a London Stock Exchange Group business, is one of the world’s largest providers of financial market data and infrastructure, serving more than 40,000 institutions around the world. Refinitiv provides information, insights and technology that drive innovation and performance in global financial markets, enabling the financial community to trade smarter and faster, overcome regulatory challenges and scale intelligently.

What we found

The screen, ranked by the StarMine IV Model, produced six companies, three of which trade as American depositary receipts. Here are two high-ranking names:

Stellantis NV, a merger of Fiat Chrysler Automobiles and Groupe PSA, is based in Amsterdam. It scored the highest of the screen with StarMine IV model score of 99. The model’s projection assumes the company’s U.S.-traded stock should be priced at US$61.27, which is 225.9 per cent above the recent closing price.

Like most automakers, the merged company’s stock price fell drastically because of the pandemic. However, its future looks bright as management projects the synergy savings from the newly formed entity will be achieved within four years. Also, the global expansion of premium brands such as Alfa Romeo and Jeep should improve profitability, which should help the stock price progress toward its fair value.

Honda Motor Co. Ltd. is a leading automaker and manufacturer of motorcycles. Its wide variety of products range from small general-purpose engines to specialty sports cars, which incorporate its efficient internal combustion engine technologies. Honda scored the second-highest StarMine IV model score in the screen, with a 98. The model projects a fair value of US$88.02, which is 179.5 per cent above its most recent closing price.

Similar to its industry peers, Honda has fallen victim to component supply shortages, which forced the company to idle production lines across the world over the past year. With the expectation that the industry will rebound at the end of 2021, Honda has projected a 15-per-cent increase in sales, year-over-year, for fiscal 2022. In addition, Honda’s 2030 Vision confirmed it will focus largely on the development of electric vehicles and aims to generate 66 per cent of its revenue from EVs by 2030.

Select U.S.-listed automakers

CompanyTickerMkt. Cap. (US$ Mil.)StarMine IV Model RankStarMine Intrinsic Value (US$)Recent Close (US$)Div. Yld. (%)1Y Ttl. Rtn. (%)
Stellantis NV (ADR)STLA-N58,5539961.2718.80n/a117.5
Honda Motor (ADR)HMC-N56,3729888.0231.493.224.6
Ford Motor Co.F-N55,0099126.8214.03n/a102.5
Thor Industries Inc.THO-N6,32788202.09114.281.4-0.9
General Motors Co.GM-N80,9048490.3055.77n/a117.0
Toyota Motor (ADR)TM-N290,13975248.40179.502.444.7

Source: Refinitiv 

Erik Foo, CFA, is a proposition sales specialist at Refinitiv, covering research and portfolio management sales.

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