Buyback Bonanza: 3 Auto Stocks That Really Believe in Themselves

Stocks to buy

If you’re looking for auto stocks to buy, Honda Motor Co. (NYSE:HMC) should be at the top of your list. Bloomberg reported earlier in May that forecasted a strong year for Honda profits due to high demand for its hybrids in the U.S. and motorcycles in Asia.

In  February, the company projected it would earn 1.25 trillion yen ($8.0 billion USD) in fiscal 2025 (March year-end). Now Honda expects profits to be 1.42 trillion yen ($9.07 billion USD). Some analysts believe it will raise its guidance again in 2025.

With the company flush with profits, it plans to buy back 3.7% of its shares, spending 300 billion yen ($1.92 billion) in the process, the most it’s ever doled out on share repurchases.

It’s always a good sign when an auto company buys back stock, generally meaning that its shares are so cheap it can’t say no to buying its shares. In the case of Honda, its shares have gained just 30% over the past five years despite generating significant profits.

Here are three other auto stocks buying back stock to express confidence in their businesses.  

Stellantis (STLA)

Source: Jonathan Weiss / Shutterstock.com

Stellantis (NYSE:STLA) stock has fallen 10.2% in the past month. Its enterprise value is $45.71 billion, just 1.47x EBITDA (earnings before interest, taxes, appreciation, and amortization). 

Ever since Sergio Marchionne’s Fiat acquired Chrysler in 2009 and proceeded to turn around both carmakers, I became a big fan of the Canadian executive. Sadly, he died unexpectedly in 2018. However, he had enough time to lay a path for the American auto industry’s resurgence.    

Today, Stellantis remains in third place among Detroit’s Big Three but is much stronger financially than it has ever been.

At the end of April, the company reported weaker results. This had more to do with timing than anything else.

“During Q1 2024, we have introduced four new models out of our full-year launch plan of 25 models, including 18 BEV nameplates, which we believe sets the stage for materially improved growth and profitability in the second half of the year,” stated CFO Natalie Knight. 

In February, the company announced it would buy back up to 3 billion euros ($3.25 billion USD) of its shares by Dec. 31. It is on schedule to complete the entire buyback.

Between share repurchases and dividends, the stock has a total yield of 11.4% on its return of capital to shareholders in 2024, putting Stellantis on the auto stocks to buy list. 

Ford (F)

Source: D K Grove / Shutterstock.com

Ford (NYSE:F) stock is down 6.8% in the past month. Its enterprise value is $165.27 billion, 17.41x EBITDA. However, there’s an asterisk to that multiple. That includes $80.2 billion in long-term debt held by Ford Credit for auto loans to its customers. A better multiple would be price-to-sales, which is 0.28x, less than Stellantis’s at 0.34x. 

Analysts aren’t thrilled with F stock. Of the 27 that cover it, only nine rate it a buy, with a target price of $13, $1 higher than where it’s currently trading. 

The company’s Q1 2024 10-Q states that it targets shareholder distributions (dividends and buybacks) of 40-50% of adjusted free cash flow. In 2024, it expects adjusted free cash flow of $7 billion at the midpoint of its guidance.     

In Q1 2023, it paid out a supplemental dividend of 65 cents and the regular quarterly payment of 15 cents. On Feb. 6, 2024, Ford announced a supplemental dividend of 18 cents in addition to the regular quarterly payment and paid on March 1. 

Based on nearly 4.0 billion shares outstanding, it should pay out $2.4 billion in regular dividends in 2024 and an additional $700 million for the 18-cent special dividend. Given its target for shareholder distributions, it might be able to repurchase as much as $400 million of its stock in 2024. It didn’t do any buybacks in the first quarter, however it should.

Mercedes Benz Group (MBGYY)

Source: Jasni / Shutterstock

Mercedes Benz Group (OTCMKTS:MBGYY) stock is down 11.1% in the past month. Its enterprise value is 142.58 billion euros ($154.38 billion), just 5.22x EBITDA. 

The company recently received some good news in America. On May 17, approximately 56% of workers at the company’s Alabama plant voted against unionizing with the United Auto Workers. This is a temporary reprieve for auto manufacturers operating in the U.S. The UAW is not going away, and they should expect more votes in the future.

Due to lower unit volumes, Mercedes’ first quarter results were not good. It reported a 4% revenue reduction and a 26% decline in net income. It expects 2024’s revenue to be flat over 2023 with lower earnings. 

Mercedes began a share repurchase program in March 2023, authorizing to buy back up to 4 billion euros ($4.33 billion USD) of its stock over 24 months. By March 2024, it repurchased 33 million shares of its stock for 2.31 billion euros ($2.50 billion USD)

In February, it adopted an official target for buying back its shares, boosting investor confidence as one of the auto stocks to buy. After paying 40% of the industrial business’s free cash flow for dividends, it is free to do share repurchases. As a result, it added 3 billion euros ($3.25 billion) for future share repurchases.  

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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