With supply chain disruptions from the pandemic mostly behind us, business at the auto giant is gangbusters again. In the most recent quarter, earnings soared 194% on a 24% increase in sales.
Other metrics are also good. Toyota enjoys a 13% operating margin. Management is earning a healthy 13% return on equity. And the stock has doubled the return of the S&P 500 since it bottomed a year ago.
Yet, I still see plenty of upside ahead. Not long ago, it looked like Tesla would dominate the market with its electric vehicles. But EV sales growth has stalled. And Tesla is being seriously challenged by Toyota’s hybrid models.
There are several reasons for this. The first is that hybrids are generally cheaper than all-electric models. And with inflation cutting into family budgets, that makes a big difference.
But there’s a bigger reason that hybrids are popular. The infrastructure doesn’t yet exist to support all the EVs on the road. It’s not just that there aren’t enough charging stations. At many of the stations that do exist, many of the chargers are out of commission.
That leads to long wait times for those who are unable to charge at home. A hybrid lets consumers scoot around town on an electric charge but use a gas station on longer trips or when chargers aren’t easily available.
Between its Toyota and Lexus brands, the company sells 26 electrified or hybrid models in the United States. It saw deliveries rise 20% in the first three quarters of this year to a total of more than 455,000 vehicles.
I expect Toyota’s sales, earnings and share price to move sharply higher in the weeks and months ahead. The stock is a bargain at less than 10 times earnings and with a dividend yield of 2.7%. So, pick up Toyota at market. And enter a sell stop at $150 for protection.