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Here's Why You Should Retain Toyota Motor (TM) Stock for Now

Toyota Motor’s TM sales volumes are likely to benefit from the continued demand for vehicles and robust lineup of trucks and sport utility vehicles (SUVs) along with its electrification push. However, shortage of microchip and soaring commodity prices are weighing on its near-term prospects.

Let us discuss the factor that highlight why investors should retain the stock.

Growth Indicators

The Japan-based carmaker is one of the world’s leading automakers, with an array of brands, including Toyota, Lexus and Scion, which position it well for future growth. The continued demand for vehicles and a robust line-up of trucks and sport utility vehicles (SUVs) are set to fuel sales volumes of Toyota.

To capitalize on the accelerated global shift to EVs, the auto giant is focused on manufacturing electric and fuel-cell vehicles, which will bolster product competitiveness. The ratio of electrified vehicles sold to total sales in fiscal 2023 was 29.6% and the company expects the ratio to increase to 37% in fiscal 2024.

Toyota’s electrification push is a major tailwind. The Japanese auto giant aims to generate 40% of its global sales from EVs by 2025 and 70% by 2030. The company plans to invest 4 trillion yen ($35 billion) for a line-up of 30 BEV by 2030. It aims to expand global sales of BEVs to 3.5 million units a year by 2030.

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The automaker’s 4 trillion-yen investment for the development of other electrified vehicles, including hybrids and fuel-cell vehicles, by the end of the decade and investment in battery development of 2 trillion yen ($18 billion) will spurt its long-term prospects. By 2025, it plans to introduce fuel-cell-enabled SUVs, and pick-up and commercial trucks. It is working on hydrogen fuel stations in collaboration with various partners.

Upbeat fiscal 2024 outlook sparks optimism. For fiscal 2024, Toyota projects consolidated vehicle sales of 9.6 million, indicating an increase from 8.82 million units sold in fiscal 2023. Fiscal 2024 sales are expected to total ¥38 trillion, suggesting an increase of 2.3% from fiscal 2023 levels. Operating income is projected to be ¥3 trillion, indicating growth of 10.1% year over year.

The company's investor friendly moves are praiseworthy. Toyota is committed to returning capital to shareholders via buybacks and dividends. Despite industry challenges, Toyota raised its dividend in fiscal 2021, 2022 and 2023.

Concerns

Shortage of microchip, a by-product of COVID-19 that got compounded by the Russia-Ukraine war, is exerting pressure on Toyota. Higher raw material prices are set to dent the firm’s margins. Supply-chain disruptions, tough labor market, logistical challenges and manufacturing inefficiencies will play spoilsports. Unfavorable foreign currency translations are likely risks.

Zacks Rank & Key Picks

TM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked players in the auto space are Geely Automobile Holdings Limited GELYY, BYD Company Limited BYDDY and Wabash National WNC, all of which sport a Zacks Rank #1.

Geely is engaged in automobile manufacturing and related areas. The Zacks Consensus Estimates for GELYY’s 2023 sales and earnings imply year-over-year growth of around 57.5% and 22.82%, respectively.

BYD is engaged in the research, development, manufacture and distribution of automobiles, secondary rechargeable batteries and mobile phone components. The Zacks Consensus Estimate for BYDDY’s 2023 sales calls for a year-over-year growth of around 209.6%.

Wabash is one of the leading manufacturers of semi-trailers in North America. The Zacks Consensus Estimate for WNC’s 2023 sales and earnings indicates year-over-year growth of 12% and 19.7%, respectively.

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Toyota Motor Corporation (TM) : Free Stock Analysis Report

Wabash National Corporation (WNC) : Free Stock Analysis Report

Geely Automobile Holdings Ltd. (GELYY) : Free Stock Analysis Report

Byd Co., Ltd. (BYDDY) : Free Stock Analysis Report

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