Will Honda Drive Ahead in 2013?
With shares of Honda Motor (NYSE:HMC) trading around $38.13, is the automaker an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
Honda ended 2012 on a strong note. The company increased its year-over-year December U.S. market share by 1.3 percentage points to 9.8 percent, making it the fifth-largest auto company operating in America. Total 2012 sales grew 24 percent compared to 2011, showing some acceleration toward the end of the year.
What’s more, the company’s domestic units did phenomenally — domestic car sales were up 67 percent and domestic truck sales were up 22.5 percent. This also more than offset huge reductions in imports and was a reflection of Honda’s focus on broadening its manufacturing footprint in the United States. The company recently rolled its 1 millionth U.S.-made car off a line.
T = Technicals on the Stock Chart Currently Show an Uptrend
As of January 15, Honda’s stock price was 4.01 percent above its 20-day simple moving average, or SMA; 12.63 percent above its 50-day SMA; and 14.95 percent above its 200-day SMA.
Since the beginning of 2013, the stock price has been in an upward trend, rising 3.22 percent this year-to-date and rising 17.54 percent year-over-year. It’s hard to hide the fact that Honda’s stock has climbed tremendously since November — over 31 percent between November 13 and January 15 — and is currently trading near its 52-week high of $39.35.
As a benchmark, the S&P 500 has risen 3.24 percent year-to-date and 14.22 percent year-over-year.
Many investors favor return on equity as a key metric to diagnose a stock’s performance. Honda comes to the table with a respectable ROE of 7.67 percent, edging out Toyota (NYSE:TM), which has an ROE of 7.23 percent. However, both companies fall short of General Motors (NYSE:GM) at 13.53 percent.
Operating margins are also critical for stock evaluation, particularly in the auto industry. Honda reports an operating margin of 4.78 percent, this time losing out to Toyota at 5.04 percent. In this case, both Japanese car makers beat out GM, which has a margin of just 3.26 percent.
T = Trends Support the Industry in which the Company Operates
Auto sales have grown at a very healthy rate since the financial crisis all but destroyed the market in the United States. The year 2012 saw about 14.5 million total vehicle sales, and forecasts for 2013 are coming in at 15 million or higher.
Honda may not repeat the tremendous annual growth rate it had seen in 2012, but that’s to be expected. The company is re-establishing itself after not just the financial crisis, but the devastating tsunami that crippled both its and Toyota’s sales.
Honda claims two out of the top 10 most popular vehicles for December 2012 — the Accord and the CR-V — and both are showing massive annual sales growth of 40.8 and 29 percent, respectively. Carried on the back of these successful models and its increased U.S. manufacturing base, Honda will no doubt hold on to its position in the 2013 market.
It seems unlikely that Honda will be able to take the number four spot from Chrysler. The private American manufacturer has an 11.2 percent share of the market, and unlike its U.S.-based counterparts, actually gained share in 2012. Honda has also only grown modestly over the long-term. The stock is up just 30 percent over the past five years, which compares unfavorably with some of its major competitors. Looking ahead to 2013, investors may be able to expect some growth, but it does not seem like a strong play.
Because of this and the metrics above, Honda is a STAY AWAY. Investors are better off looking for stocks that scream “outperform.”
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