The global automobile market is growing due to the rising demand for affordable vehicles in emerging economies, driving innovation toward sustainable solutions. Thus, investors could consider investing in top auto stocks PACCAR Inc (PCAR), Gates Industrial Corporation plc (GTES), and Garrett Motion Inc. (GTX) with accelerating profits.

In 2024, global electric vehicle sales are projected to rise, with the United States expecting a 16% year-over-year growth. Additionally, the global used car market is forecasted to grow by 5% to 6%, with sales reaching 94 million to 96 million vehicles, indicating a shift toward a more organized market.

Moreover, automotive R&D is adapting to electric vehicles, software-defined systems, and generative AI, with significant investments aimed at improving efficiency and innovation, offering opportunities for cost reduction and faster product development. The global automobile market is predicted to grow at a CAGR of 4.4% to reach around $3.97 trillion by 2030.

In addition, AI is revolutionizing the automotive industry, driving advancements in autonomous vehicles and improving production capabilities, supported by growing demand and government initiatives. The global automotive AI market is expected to grow at a CAGR of 22.7% from 2023 to 2030.

Furthermore, the global auto parts market is rapidly growing due to increasing demand for high-performance components and the transition to electric and hybrid vehicles. This growth is driven by consumer interest in vehicle enhancement and government incentives for electric vehicle infrastructure.

The global auto parts market is expected to reach $755 billion by 2026, with a CAGR of 7.5% by 2032.

Considering these conducive trends, let’s examine the fundamentals of three auto stock picks.

PACCAR Inc (PCAR)

PCAR is a leading global provider of commercial trucks, aftermarket parts, and financial services, operating under renowned brand names. With a diverse portfolio spanning truck manufacturing, parts distribution, and leasing operations, it serves customers across multiple regions worldwide.

PCAR’s trailing-12-month ROTA of 11.27% is 137.7% higher than the industry average of 4.74%. Its trailing-12-month cash from operations of $4.19 billion is significantly higher than the industry average of $298 million.

On January 4, PCAR paid a cash dividend of $4.24 per share. The company pays $1.08 annually, which translates to a yield of 0.97% on the prevailing price level. Its four-year average dividend yield is 3.65%. The company has raised its dividend payouts at a CAGR of 7.5% and 6.5% over the past three and five years. Moreover, the company boasts a 33-year record for consecutive years of dividend payments.

During the fourth quarter, which ended December 31, 2023, PCAR’s sales and revenues grew 11.7% year-over-year to $9.08 billion. The company’s net income and net income per share rose 53.8% and 53.4% from a year-ago quarter to $1.42 billion and $2.70, respectively. As of December 31, 2023, its current assets amounted to $40.82 billion, compared to its previous fiscal year's current assets of $33.28 billion.

PCAR’s revenue and EPS are expected to be $31.65 billion and $8.01, respectively, for the fiscal year ending December 2024. The company surpassed its revenue and EPS estimates in each of the trailing four quarters, which is promising.

The stock has surged 61.3% over the past nine months and 35.8% over the past six months to close the last trading session at $111.33.

PCAR’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has a B grade for Stability and Sentiment. Within the Auto & Vehicle Manufacturers industry, it is ranked #15 among 52 stocks.

Click here to see PCAR’s ratings for Growth, Value, Momentum, and Quality.

Gates Industrial Corporation plc (GTES)

GTES specializes in manufacturing and selling power transmission and fluid power solutions worldwide under the Gates brand. Its products cater to various industries such as automotive, industrial, and personal mobility, serving both replacement and original equipment markets.

GTES’ trailing-12-month levered FCF margin of 10.77% is 69.4% higher than the industry average of 6.36%. The stock’s trailing-12-month cash from operations of $481 million is 61.4% higher than the industry average of $298 million.

In the fourth quarter, which ended December 30, 2023, GTES reported net sales of $863.30 million. Its adjusted net income and EBITDA increased 47.1% and 11.9% year-over-year to $104.70 million and $185.80 million, respectively. Also, its net income per share grew 56% from the prior-year quarter to $0.39.

For the fiscal year 2024, the company anticipates its adjusted EBITDA to range from $725 million to $785 million, and adjusted EPS is projected to be between $1.28 and $1.43.

Street expects GTES’ revenue to be $872.96 million for the fiscal first quarter ending March 2024. Its EPS for the same quarter is expected to improve 19.2% year-over-year to $0.30. The company surpassed the EPS estimates in three of the trailing four quarters.

GTES’ shares have increased 24.9% over the past nine months and 23.9% over the past six months to close the last trading session at $14.61. Also, it gained marginally intraday.

GTES’ POWR Ratings reflect its robust prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

GTES has a B grade for Growth, Value, Sentiment, and Quality. Within the A-rated Auto Parts industry, it is ranked #4 out of 62 stocks.

In addition to the POWR Ratings stated above, one can access GTES’ additional Momentum and Stability ratings here.

Garrett Motion Inc. (GTX)

Based in Rolle, Switzerland, GTX specializes in turbocharging, air compression, and electric motor technologies for OEMs and distributors globally. Its cutting-edge solutions serve diverse industries, including automotive and industrial applications, and are available through both OEM and aftermarket channels.

GTX’s trailing-12-month EBIT margin of 13.28% is 78.9% higher than the industry average of 7.42%. Its trailing-12-month ROTA of 10.33% is 150.7% higher than the industry average of 4.12%.

GTX’s net sales and gross profit increased 5.2% and 17.4% from a year-ago quarter to $945 million and $189 million, respectively, in the fourth quarter that ended December 31, 2023. The company's adjusted EBITDA and free cash flow grew 3.6% and 3.8% from the prior-year quarter to $145 million and $137 million, respectively.

For the fiscal year 2024, the company anticipates net sales of $3.87 billion, with net income projected at $253 million. Additionally, adjusted EBITDA is forecasted to reach $620 million, while net cash provided by operating activities is expected to be $420 million, with adjusted free cash flow estimated at $375 million.

Analysts expect its revenue to be $954 million for the fiscal first quarter ending March 2024. Its EPS for the same quarter is expected to improve 83.9% year-over-year to $0.24. The company surpassed its EPS estimates in three of the trailing four quarters.

The stock has gained 24.4% over the past three months to close the last trading session at $9.43.

GTX’s POWR Ratings reflect this optimistic outlook. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.

It has a B grade for Value, Stability, Sentiment, and Quality. In the Auto Parts industry, it is ranked #5.

To access additional ratings for GTX’s Growth and Momentum, click here.

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PCAR shares were trading at $111.42 per share on Wednesday morning, up $0.09 (+0.08%). Year-to-date, PCAR has gained 14.39%, versus a 6.34% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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