- When it comes to placing capital in the automotive sector, some options immediately arise.
- The ultra-well-known Detroit companies (Ford and General Motors) appear as the most obvious stocks.
- However, there are diamonds like Stellantis that could be the best decision.
Stocks of Ford and GM seem to be holding on to the bad shape they ended up in last year. However, investors do not lose faith in the improvement due to the future projects of the Detroit manufacturers. MWhile these companies desperately search for the silver bullet, investing in Stellantis appears to be a more profitable option.
The point is that the shares of this last company have little visibility in the eyes of capital. This is because this company resulting from the merger between Peugeot and Fiat Chrysler has barely been in existence for two years. Thus, it is explained that the company is treated as “the spare wheel” compared to the two Detroit giants. But beyond this fact, in practice, the company performs formidably in the market.
The company’s models are also among those with a long tradition among the public. For example, the brands Dodge, RAM and Jeep are true legends on wheels and their models sell out quickly every year. Thus, the fact that this company is ignored 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 Wall Street Journal.
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Why is it profitable to invest in Stellantis?
The fact that important analysts consider that investing in Stellantis is a good decision, is not without attention. As explained by the aforementioned media, the reasons for this are plain to see. In that sense, the American branch of that company, Chrysler, obtained highly positive figures during the past year 2022.
In that period, the company generated adjusted operating income of approximately $14.9 billion. This is a superior performance to that of the two aforementioned rivals. Thus, Ford’s revenue was $13 billion and GM’s was $9.2 billion. As for Tesla, its worldwide operating income was $13.7 million. In this case, the caveat is made that Elon Musk’s company does not have a geographical division like the other companies.
But the company’s prospects rise disproportionately if you count its global revenue. Consequently, the market power that the firm has in European and Latin American countries stands out. Thus, totalized global revenue was $23.3 billion in 2022. In percentage terms, this is an increase of 29 points compared to revenue in 2021.
All of this prospect makes investing in Stellantis one of the smarter choices right now. The fact that the company’s image is overshadowed by other large companies in the automotive sector benefits potential investors. On the other hand, the positive spirit that the merger of two years ago has brought is added. The fact that these two well-known companies have become one allows them to increase revenue in areas where their rivals cannot.
The expression of these figures in the stock market
Stellantis’s listing on the stock market is a case apart from his business. Although it now slightly exceeds Ford in capitalization and trails General Motors, investors are less willing to pay for their shares.
In other words, investors are willing to pay more for a dollar earned from Ford and even GM than one from Stellantis. That speaks volumes about the discount price at which the value of this company’s shares is found in the stock market. To see the whole picture, one must highlight the fact that GM is trading at seven times expected earnings. Meanwhile, Ford does it eight times and Stellantis just four times.
Thus, despite the good results in terms of adjusted income, the shares of this company are not among the favorites of investors. There are reasons why it is so. For example, it is a company that is barely 2 years old and has a complex background. This firm resulting from the merger between Fiat Chrysler and Peugeot does not have a mega-brand that drives it when it comes to carrying its message like its rivals.
At the same time, the French style of displaying its figures is not one that is very helpful among US investors. Investing in Stellantis means that investors must have enough stomach to digest only two annual reports. In this sense, the company only publishes sales data during the first and third quarters of the year.
Technological lag in the United States
Another factor that probably keeps investors away from the shares of this automaker is related to technology. Although the company has a strong market for electric car sales in Europe, the story in the United States is different. LThe responsibility for the latter does not fall on the pressure of the competition, but on the business model of this company.
Thus, in the North American country, 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 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 cars powered by combustion and hybrids will go out of the market. Thus, current investments do not have the long-term prospect that owners of investment capital seek. In this context, the idea that investors are concerned about the company’s low commitment to the future is gaining strength.
The data for capital expenditures and investments seem to coincide with those hypothetical fears of capital when investing in Stellantis. In 2022, these outlays were $8.9 billion, up from $10.1 billion a year earlier, the WSJ says.
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Stellantis’ efforts to attract investors
Despite these likely mistakes by the company in terms of its investments and its capital outlay, there is no reason for its shares to be so low. The firm’s board of directors seems to fully understand that they must put more effort into their strategy of attracting capital. Hence, some measures are being taken in this regard.
In the middle of this week, the company announced an injection of $5.7 billion dollars for the payment of dividends and the repurchase of 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 seen before in our industry” – Carlos Tavares, CEO of Stellantis.
This Friday (February 24), the company published its annual earnings report of 2022. Apart from the positive earnings data, the executive director of the firm, Carlos Tavares, was highly optimistic about the future of the company. Among other things, he said that the magnitude of sales in such a short time is the greatest achievement in the history of the auto industry so far.
In his message, he informed 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. Regarding earnings, they are summarized as follows: $178 billion in net earnings, which represents an increase of 18%. The aforementioned adjusted operating earnings of $23.3 billion represented an improvement of 29%. Meanwhile, net income from continuing operations was $16.8 billion, up 26%.