After identifying the most popular stocks among hedge funds (see our top 10 here) according to their third quarter 13F filings, we have decided to break down the top ten stocks that hedge funds love in the auto industry. Rising prosperity in various emerging countries, including China, looks set to boost overall auto demand in the coming years. Also fueling growth is the pent up demand due to a high average vehicle age, currently around 11 years old. Our list includes the hundreds of hedge funds and prominent investors that are required by the SEC to disclose their public equity holdings quarterly. In descending order, we have outlined the most-loved automakers based on the aggregate number of funds owning each.
Honda Motor Co Ltd (NYSE:HMC) had nine filers owning the stock, putting it tied for ninth. This Japanese automaker, along with its peer Toyota, is still finding traction following the Japanese earthquake that decimated production levels and put domestic demand in the gutter. Honda pays a 2.5% dividend yield, well above Toyota’s 1.75% yield.
Toyota Motor Corporation (NYSE:TM) found itself tied for ninth with 9 filers. Toyota and Honda had the same number of bullish hedge funds, both trade with relatively the same P/E (15x) and P/S (0.5x) ratios, but their expected growth rate is where they part. Each Japanese automaker has robust growth prospects, but Toyota outpaces Honda’s five-year EPS CAGR by ten percentage points. Toyota has a 40% five-year CAGR, compared to Honda’s 30%.
Tata Motors Limited (NYSE:TTM) is in eighth with a total of 10 filers at the end of 3Q. Tata’s prospects come in well below our previous two automakers, with a five-year CAGR of only 10%, and trading at the high end of the industry with a 34x P/E. Its forward P/E of only 12x does suggest Tata will perform better than investors are expecting, and could mean that the car company is a value play.
Navistar International Corp (NYSE:NAV) came in as our seventh most popular automaker loved by hedge funds with 12 filers, after a net decrease of 6 filers last quarter. Navistar, the maker of International brand trucks and military vehicles, trades with an incalculable P/E—even its forward P/E comes in as incalculable due to negative expected 2014 EPS. Despite the company's bleak bottom line outlook, there could be inherent breakup value given its various segments. Navistar saw billionaire Carl Icahn increasing his stake during 3Q (check out Icahn’s new picks).
Paccar Inc (NASDAQ:PCAR) had 14 filers owning the company at the end of 3Q to come in sixth. The truck maker trades at 13x earnings, but with its 13% expected growth it appears to present a pretty good value offer with a PEG of 1.0. The auto company is up 17% year to date, but it pays a 1.8% dividend yield for investors willing to buy in now.
Tesla Motors Inc (NASDAQ:TSLA) saw a net decrease of 2 filers and called 14 filers owners to be the fifth most popular auto stock owned by hedge funds in 3Q. The electric car manufacturer appears to be one of the only carmakers that can match the Japanese car companies’ growth prospects. Tesla is expected to grow EPS at a 37% CAGR, but at first glance it appears this growth might already be "baked" into the stock. The electric carmaker trades at 200x forward earnings and is up almost 20% year to date.
Oshkosh Corporation (NYSE:OSK) only barely beat out Tesla for fourth with 15 filers. Oshkosh is manufacturer of a variety vehicles and components, and trades at one of the cheapest P/E ratios in the industry at 11x. Couple Oshkosh’s valuation with its 13.5% long-term growth rate and it appears to be a solid value with a PEG of only 0.9.
Wabco Holdings Inc. (NYSE:WBC) came in third with almost double the filers of Oshkosh with 29 filers. Wabco, like Oshkosh, is another diversified auto company that also trades at a deep value, even deeper than Oshkosh. Wabco trades at 13x earnings, but coupled with its 20% growth rate its PEG is merely only 0.7. Although Wabco is up 40% year to date, we still see value in the company. Billionaire Warren Buffett was a new mega-investor owning Wabco during 3Q (check out Warren Buffett’s newest picks).
Ford Motor Company (NYSE:F) was in second place with 47 filers after a net increase of only one fund last quarter. Ford trades at the lowest earnings multiple of all ten of our auto stocks loved by hedge funds. Along with this, Ford has the lowest expected EPS growth rate at 6% of our auto stocks. Interestingly, Ford does pay a 1.8% dividend yield, and will be one of the top benefactors of a turnaround in the U.S. auto industry. Ford has beat analysts' estimates each of the last three quarters, most recently by 33%.
General Motors Company (NYSE:GM) was by far the top auto company with 88 filers owning the stock, after a net increase of 10 filers – the largest increase among our auto stocks listed. GM trades cheaply on a P/E basis at 10x earnings, although it is not as discounted as Ford. GM appears to be one of the best values on this list as well, trading at a forward P/E of only 7x. GM has a superb expected EPS growth rate of 12%, which gives it the lowest PEG of all ten stocks listed at 0.65. General Motors was also a top pick at this year’s Invest For Kids Conference (see the entire GM analysis here).