The Asian leader
Born as a motorbike company, Honda Motor Co Ltd (ADR) (NYSE:HMC) has successfully entered the car industry. Today, the company’s bike segment has seen the greatest growth, and car sales in the Indian market have grown considerably, holding further potential to dominate the market in the USA. Additionally, revenue in 2013 rose 25%.
Honda Motor Co Ltd (ADR) (NYSE:HMC) has announced the development of new products for local markets, and is expected to restore production levels in Thailand and Japan. Such catalysts are expected to help the firm post a 22.5% increase in revenue for the year 2014. Nevertheless, the company has lost some ground in the Chinese market to Toyota, and cash flow has suffered a small reduction.
A stronger dollar and the fuel-efficient segment places Honda Motor Co Ltd (ADR) (NYSE:HMC) in a better position than American car makers. However, the firm faces strong competition from Toyota’s fuel-efficient cars, from which it is expected to take market share in the future.
All around, Honda Motor Co Ltd (ADR) (NYSE:HMC) is financially healthy, although debt levels should keep management worried. Currently, the stock is trading at a 45% premium with rosy estimates. Since dividends and yield are conservative, only a long-term investment will give shareholders a good return.
The European leader
Volkswagen, the world’s largest car maker by volume, has both suffered and benefited from the international market. However, the company holds higher operating margins than other global competitors. Clearly, the German car maker has created an important economic moat.
Affected by the Eurozone’s poor performance, VW has seen a change in sales mix. While Western Europe has slowed down, the Asian market today represents 35% of deliveries made by the company. Further, the Chinese market has witnessed a 36% increase in year-over-year operating income, making a strong statement against North American and Japanese competitors.
As market presence has diversified, so has VW’s product offerings. The company is present in all segments, from the simplest and cheapest to the most luxurious and expensive. Also, through its financial branch, the firm has facilitated car access and widened its customer base. Additionally, the brand is strongly recognized and associated with its half-brother Audi, building great customer loyalty.
Lastly, VW holds an impressive financial health, backed by market and product diversity. So, even when debt levels increase and cash flow may take a quick dip, the firm remains in a better financial standing than competitors. Additionally, its stock is trading at a discount, a rising dividend, reasonable yield, and a rising payout ratio, making it a great buy for the long-term.
The American leader
General Motors Company (NYSE:GM) filed for bankruptcy in 2009. Since then, much has happened: restructuring, a government bailout, job-cuts, dealership reduction, and reduction in brands. Many remain hopeful the giant will promptly recover and look for evidence on profit reported since 2010. Also, expansion into the Chinese market is fueling positive prospects.
As many other important companies, General Motors Company (NYSE:GM) has focused on the developing world in order to exploit market potential and boost sales. For the same reason, the company has entered the Chinese market, and developed expansion plans for Indonesia and Thailand. Worldwide, the firm is pumping money to improve its products.
General Motors Company (NYSE:GM)’s stock price has accompanied the general market drop in the last few days. Trouble does not end there since the Eurozone is still to find a steady recovery path. Additionally, debt levels have been increasing and net cash flow suffered a great reduction.
Despite its alluring valuation at 8 times its earnings, it is recommended to hold on account of the company’s fragile financial standing and the increasing competition it faces in the developing markets.
Bottom line
The Detroit car makers had passed another dark moment in history. Compared to the 1970’s, the Detroit firms today face greater and more successful competition. Also, recovery has proved harder, and future remains uncertain. For all that, buying the stock of General Motors Company (NYSE:GM) is not recommended. If you’re looking for a sure long-term investment, buy the stock of Honda Motor Co Ltd (ADR) (NYSE:HMC) or VW.
The article A Few Leading Car Makers to Consider originally appeared on Fool.com and is written by Victor Selva.
Victor Selva has no position in any stocks mentioned. The Motley Fool recommends General Motors. Victor is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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