Positives Line Up For Carmakers; Toyota Looks Strong


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Is the pent-up demand for auto sales about to pop?

U.S. car sales averaged 16.8 million annually in 2000-07. Because of the recession and limping recovery, new car sales averaged 12 million in 2008-11.

Industry watchers expect 14.4 million this year and 15 million in 2013. OK, that's still below the pre-recession average. Consider, though, the factors lining up:

An Edmunds.com forecast said that deferred sales during the recession will rise in 2013, especially as banks start lending again; that the driver population in the U.S. has been rising on average 2 million drivers per year since 1991; that more car leases will terminate in 2013 than did in 2012, leading to sales; that the average age of cars on the road reached 11 years in Q1 2012; and that Superstorm Sandy destroyed 200,000 to 250,000 vehicles, of which about a third are expected to result in insurance money applied to new car sales.

A recession in 2013, however, could dash the expectations tied to the above factors.

Also, the worldwide outlook is less upbeat. Moody's expects world growth in car sales to slow in 2013 because of troubles in Europe and slower economic growth in China.

Carmakers are expected to encounter margin pressures with one exception: Japanese carmakers will see margins improve, according to Moody's. A strong yen, though, would hurt them.

So, which car stock offers income investors the best opportunity?

Of the five dividend-paying stocks in the automakers industry group, only one meets three standards: a Composite Rating above 85, earnings growth expected for this fiscal year and next fiscal year, and upward earnings revisions for both years.

The stock isToyota ( TM ), which has overcome some troubles. The 2011 tsunami and several recalls hurt.

In the past three quarters, however, earnings jumped 365%, 22,900% and 212%. Revenue advanced 24%, 62% and 17% in the same periods. The Street expects EPS to grow 101% in the current quarter, but revenue is expected to be roughly flat.

The annualized dividend yield is 1.6%.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance Investing Ideas
Referenced Stocks: TM

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