- When it comes to placing capital in the automotive sector, a few options immediately come to mind.
- The ultra-known Detroit companies (Ford and General Motors) present themselves as the most obvious stocks.
- However, there are diamonds like Stellantis that could be the best decision.
Ford and GM stocks appear to be holding on to the bad shape they ended last year in. However, investors are not losing faith in improvement due to the Detroit manufacturers’ future projects.While these companies are desperately searching for the miracle formula, investing in Stellantis seems to be a more profitable option.
The point is that the latter company’s shares have little visibility in the eyes of capital. This is due to the fact that this company resulting from the merger between Peugeot and Fiat Chrysler is only two years old. This explains why the company is treated as a “spare tire” compared to the two Detroit giants. But beyond this fact, in practice, the company has a formidable performance in the market.
The company’s models are also among those with a long tradition among the public. For example, the Dodge, RAM and Jeep brands are true legends on wheels and their models sell out quickly every year. As such, the fact that this company is overlooked in the market could be a good sign to invest now. The firm’s earnings and growth prospects are a source of optimism for many analysts including those at the Wall Street Journal.
Why is it profitable to invest in Stellantis?
The fact that leading analysts believe that investing in Stellantis is a good decision is striking. As explained by the aforementioned media, the reasons for this are obvious. In this regard, the U.S. branch of this company, Chrysler, obtained highly positive figures during the past year 2022.
In that period, the company generated an adjusted operating income of approximately $14.9 billion dollars. This is a better performance than the two aforementioned rivals. Ford’s revenue was $13 billion and GM’s $9.2 billion. As for Tesla, its worldwide operating income was $13.7 billion. In this case, the caveat is that Elon Musk’s company does not have a geographic division like the other companies.
But the company’s prospects increase disproportionately if its global revenues are counted. Consequently, the firm’s market power in European and Latin American countries stands out. Thus, totalized global revenues were $23.3 billion in 2022. In percentage terms, this is a 29-point increase compared to revenues in 2021.
All of this prospect makes investing in Stellantis one of the smartest options right now. The fact that the company’s image is overshadowed by other automotive majors benefits potential investors. Moreover, it adds to the positive spirit brought to the company by the merger two years ago. The fact that these two well-known companies have become one allows them to increase revenues in areas where their rivals cannot.
The expression of these figures in the stock market
Stellantis’ stock market listing is a case apart compared to its business. Although it is now slightly ahead of Ford in capitalization and behind General Motors, investors are less intent on paying for its stock.
In other words, investors are willing to pay more for a dollar earned from Ford and even GM than they are for one from Stellantis. That speaks volumes about the discount price at which this company’s holdings are valued in the stock market. To see the full picture, one must highlight the fact that GM trades at seven times expected earnings. Meanwhile, Ford does so at eight times and Stellantis at only four times.
So, despite strong adjusted earnings results, this company’s stock is not among investors’ favorites. There are reasons for this. For example, this is a company that is only 2 years old and has a complex background. This firm resulting from the merger between Fiat Chrysler and Peugeot does not have a megabrand to drive its message like its rivals.
At the same time, the French style of showing its figures is not one that helps much among U.S. investors. Investing in Stellantis means that investors must have enough stomach to digest only two annual reports. In that regard, the company only publishes sales data for the first and third quarters of the year.
The technological lag in the United States
Another factor likely keeping investors away from this automaker’s stock is related to technology. While the company has a strong market for electric car sales in Europe, the story in the United States is different.The responsibility for the latter lies not with competitive pressure, but with this company’s business model.
Thus, in the United States, the company focuses on the production of hybrid cars. Although this strategy is highly lucrative, it is not fully focused on the future. In simple terms, while Ford and GM have a fierce dispute in the exclusive area of electric cars, Stellantis’ strategy seems to leave it lagging behind. In the eyes of investors, this means that the company’s management would not be interested in investing in the future.
The car market is expected to be exclusive to electric cars within a decade. This means that combustion-powered cars and hybrids will exit the market. Thus, current investments do not have the long-term prospects that owners of investment capital are looking for. In this context, the idea that investors are concerned about the company’s low stake in the future is gaining momentum.
The capital expenditure and investment data seem to match these hypothetical fears of capital when it comes to investing in Stellantis. In 2022, those outlays were $8.9 billion, up from $10.1 billion a year earlier, WSJ says.
Stellantis’ efforts to attract investors
Despite these probable mistakes by the company in terms of its investments and capital outlay, there is no reason for its shares to be so low. The firm’s management seems to fully understand that they need to put more effort into their strategy of attracting capital. Hence, some measures are being taken in that direction.
In the middle of this week, the company announced an injection of $5.7 billion to pay dividends and buy back its shares. To get an idea of the magnitude of this measure, it should be noted that it is equivalent to 11% of its market capitalization. For WSJ analysts, the prospect of selling Ford and GM shares to invest in Stellantis could hold in 2023.
“Stellantis continues its transformation into a sustainable mobility technology company at a pace never before seen in our industry” – Carlos Tavares, CEO of Stellantis.
This Friday (February 24), the company released its 2022 annual earnings report. Aside from the positive earnings data, the firm’s CEO, Carlos Tavares, was highly optimistic about the company’s future. Among other things, he said that the magnitude of sales in such a short time is the greatest achievement in the history of the automotive industry so far.
In his message he reported that the company will reach net zero in carbon emissions by 2038. He also assured that by 2030 CO₂ emissions will be cut in half. As far as earnings are concerned, they are summarized as follows: $178 billion in net earnings, representing an increase of 18%. The aforementioned adjusted operating earnings of $23.3 billion represented a 29% improvement. Meanwhile, net income from continuing operations was $16.8 billion for a 26% rise.
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