Toyota Motor Corporation (ADR) (TM), Honda Motor Co Ltd (ADR) (HMC): Strong Sales in July Call for a Look at Japanese Car Stocks

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With a weaker yen, Japanese car manufacturers now have a competitive advantage in pricing their feature-packed cars in the American market. That being said, growth potential is slowly drifting away from the developed world and towards the developing economies. At a time when woes surround the European car manufacturers amid disappointing sales and slow growth, the Japanese car manufacturers are mounting a solid challenge.

Toyota Motor Corporation (ADR) (NYSE:TM)A tamer Japanese currency and the last of the problems associated with the tsunami and earthquake crises in Asia have set Toyota Motor Corporation (ADR) (NYSE:TM) free from years of crisis management and into a new phase. The company reported record quarterly profit of $5.63 billion and raised its outlook for the year, benefiting from years of cost-cutting and a windfall from a weaker yen. Toyota Motor Corporation (ADR) (NYSE:TM) wants to make a jump and sell 10 million vehicles a year worldwide under its Toyota New Global Architecture approach to research and development of new models.

Nissan Motor saw a surge in demand for its all-electric Leaf in the month of July after the company cut prices for its all-electric Leaf car as it missed sales targets in the last two years. Further underlining the belief in all-electric is the company’s push to add quick charging at more than 100 U.S. Leaf certified dealerships. As the developed economy slows down, Nissan is focusing on the developing countries such as India, Russia, and Indonesia with the re-introduction of its Datsun brand. At the same time, Nissan’s upscale Infiniti unit is undergoing a revamp to lure wealthy Chinese buyers.

Honda Motor Co Ltd (ADR) (NYSE:HMC)’s net profit slipped 7% in Q2 2013, with U.S. sales growth and the benefits of a weaker yen offset by increased spending on a major expansion. Honda has set an aggressive goal to expand global annual sales to 6 million vehicles by March 2017 from the current 4 million, and is incurring expansion costs as it builds multiple new plants. The company is shifting its focus to emerging markets and on deploying a low-cost parts sourcing scheme. In the U.S., Honda Motor Co Ltd (ADR) (NYSE:HMC)’s sales experienced a 21% increase on a year-on-year basis, and beat its Japanese competitors Toyota Motor Corporation (ADR) (NYSE:TM) and Nissan.

Financial comparison

Indicator Toyota Nissan Honda
P/E TTM 20.3 12.4 17.9
Forward P/E 14.1 10.0 9.4
PEG Ratio 0.8 1.0 0.5
Operating Margin % TTM 6.0 5.5 5.5
Dividend Yield
, %
0.54% 1.42% 1.84%
Current Price $129.82 $22.20 $37.40

Data from Morningstar and Financial Visualizations on August 3, 2013

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