Mark Kingdon, founder of Kingdon Capital, appeared at CNBC’s Delivering Alpha’s conference last week where he touted his best investment ideas. His overwhelming theme? Japan. He loves the Japanese auto market, which will prove to be the biggest benefactor of Abenomics. His specific picks included Mazda, Fuji Heavy and Toyota Motor Corporation (ADR) (NYSE:TM).
Toyota Motor Corporation (ADR) (NYSE:TM) is making a comeback, while Subaru continues to focus on safety and is moving to higher-margin vehicles. Kingdon notes that Mazda has the biggest upside with the most risk. All three car stocks trade at forward price-to-earnings ratios of less than 10, but Kingdon sees fair value of 13 times.
Assuming Toyota Motor Corporation (ADR) (NYSE:TM) trades at 13 times forward earnings, its fair value is over 10% higher than current trading levels. Kingdon notes that the wages of workers will be rebounding in Japan and the U.S., which will lead to higher Toyota sales. Sales are expected to be up 7% in fiscal 2014.
Back in 2008, Toyota took the top stock as the largest seller of vehicles by volume. But thanks to various Asian-specific issues, including the Tohoku earthquake and tsunami, it lost this top spot. But in 2012, Toyota regained its title as the leader, surpassing General Motors Company (NYSE:GM). Toyota Motor Corporation (ADR) (NYSE:TM) sold 9.7 million vehicles in 2012, compared to General Motors Company (NYSE:GM)’s 9.3 million.
For fiscal 2013, over 25% of Toyota’s unit sales were generated in Japan. The company hopes to maintain its market leadership in the country with the introduction of new cars. This should help it to achieve its goal of 40% market share in Japan. Meanwhile, North America makes up 28% of revenue, where Toyota has been increasing production over the past few years.
Toyota Motor Corporation (ADR) (NYSE:TM) also owns the number-one spot in hybrid offerings and plans to introduce eight compact car models in the emerging markets by 2015. This includes Brazil, China, India and Indonesia. Toyota is hoping that sales to emerging markets will be 50% of sales by 2015, compared to 19% in 2000.
Toyota Motor Corporation (ADR) (NYSE:TM)’s most notable peer is its Japanese rival Honda Motor Co Ltd (ADR) (NYSE:HMC). Analysts expect a 22% rise in fiscal 2014 revenue. Honda Motor Co Ltd (ADR) (NYSE:HMC) has the most exposure to the North American market among the three major Japanese automakers. While this is great for Honda, assuming that the U.S. continues its robust growth, I like the fact that Toyota has some of the best exposure to the faster growing emerging markets.