Tata Motors: Nano to Jaguar

06/14/2016 10:00 am EST

Focus: GLOBAL

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Our latest featured recommendation is the largest automotive company in India, with a lineup of vehicles that runs from micro and compacts trucks, military vehicles and luxury brands, observes growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

Tata Motors (TTM) made headlines back in 2008 when it bought the Jaguar and Land Rover businesses, and again in 2009 with the introduction of the Tata Nano, “the world’s cheapest car,” with an initial price of around $2,000.

While the Nano was never the blockbuster product that the headlines predicted, Jaguar and Land Rover sales in China proved to be a big boost to Tata’s revenue.

The company’s quarterly report on May 30 featured a 12% jump in revenue (after four quarters of declines) and a 170% leap in earnings, largely due to strong sales gains in Jaguar and Land Rover in Europe and China.

Luxury car sales are economically sensitive, and the reversal in the company’s stock price in 2015 was largely attributable to dips in luxury sales.

With the strong quarterly results, Tata Motors may be signaling a boost in confidence in both regions.

Estimates for Tata’s fiscal 2017 earnings call for a 110% jump, and that plus the stock’s reasonable 14 P/E ratio (forward P/E is just 7) make this a bargain-priced way to play the strength of the Indian economy and a possible rebound in Europe and China.

TTM rallied nicely through 2014, rising from $22 in September 2013 to $52 in February 2015. But the stock sprang a leak falling $20 in February 2016.

The rebound to $32 in April wasn’t much help in identifying unusual strength, but that strength was confirmed by the stock’s gap higher on more than four times average volume.

The stock has inched higher since that big gap and is buyable on any weakness. If you have a taste for an emerging markets leader, try to buy in under $34 and put a loose stop at $30.

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By Mike Cintolo, Editor of Cabot Top Ten Trader

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