The automotive industry has been in a tough spot in recent years. Adoption of electric vehicles has slowed worldwide, China is in an economic funk that has hurt sales, and the major automakers in America endured a costly strike by their unionized workers last autumn.
At the same time, battery development and the public infrastructure needed to support electric vehicles have not moved at a pace fast enough to support the industry’s ambitions. The end result is that the majority of automakers have seen their stocks steadily decline in recent years. Auto stocks have been among the worst investments since before the Covid-19 pandemic began in 2020.
The good news is that we’re starting to see a reversal, with many auto stocks having now bottomed and starting to rise again. Here is from zero to hero: three auto stocks accelerating out of a slump.
General Motors (GM)
After a prolonged decline, the stock of General Motors (NYSE:GM) is up 10% so far in 2024. The reversal comes after a difficult strike last fall by the United Auto Workers (UAW) that saddled the Detroit automaker with an expensive new labor agreement. GM has done its best to put the strike behind it, announcing a strong earnings beat at the end of January and raising its quarterly dividend payment to stockholders by 33%.
Starting this year, GM is paying a quarterly dividend of 12 cents a share. The company also announced that it will buy back $10 billion of its own stock over the coming year. The dividend hike and share buybacks come alongside better-than-expected earnings. For the final quarter of 2023, General Motors reported earnings of $1.24 a share on revenue of $42.98 billion. That best estimates of $1.16 a share and sales of $38.67 billion.
While GM stock is rising currently, its share price is only up 4% through five years and looks cheap trading at just five times future earnings estimates.
Toyota Motor (TM)
Few if any companies have enjoyed as big a turnaround in their share price as Japanese automaker Toyota Motor (NYSE:TM). Since the start of the year, TM stock has gained 30%. That brings its increase over the past 12 months to 72%. That’s a big turnaround for the world’s largest vehicle manufacturer, whose stock had languished for years as investors and analysts worried aloud that the company was missing the electric vehicle revolution.
The spark that has lit a fire under TM stock was the company’s announcement last year that it is going all-in on electrification of its fleet. Toyota has long been a leader in popular gas-electric hybrids but had been slow to introduce fully electric versions of its cars, trucks and SUVs. Not anymore. Toyota now plans to sell 3.5 million battery-powered vehicles a year by 2030. The new strategy has investors piling into TM stock.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) is facing some big issues. Rising competition, declining market share, price discounts, and quality issues are all weighing on the company’s stock, which has fallen 30% so far in 2024. While the company has not accelerated out of its slump yet, it has been here before and always comes roaring back. Between September 2022 and January 2023, TSLA stock fell 63% before rising 149% over the next six months.
Currently trading at $175 a share, TSLA stock is starting to look both cheap and enticing as a buy-the-dip candidate. The median price target on the company’s shares is 20% higher than current levels. The big question is whether Tesla can turn things around. Some analysts speculate that the company may move away from electric vehicles and into entirely new directions. Tesla is already developing supercomputers and robot assistants.
While it is a gamble, history has shown that when TSLA stock turns, it turns quickly.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
