Tata: "More Than Cheap Cars"

01/02/2017 10:00 am EST


James Pearce

Director of Research, Investing Daily

The pendulum is swinging back to Europe and Asia, whose stock markets are more enticingly valued than ours right now, suggests Jim Pearce, editor of Investing Daily's flagship newsletter, Personal Finance.

I’ve been watching Tata Motors Ltd. (TTM) over the past few years with increasing interest. As India’s largest carmaker, it stands to benefit from the tenfold projected growth in the middle class in both India and China over the next decade.

Many of those consumers will be first-time car buyers seeking the kind of low-priced vehicles that Tata is renowned for, especially its subcompact Nano, a two-seater model that sells new for less than $3,000.

But there is a lot more to Tata than just cheap cars. In fact, it also owns the Jaguar and Land Rover automobile brands, which means the company can keep customers for life as they trade up to more expensive vehicles.

Tata also makes a wide range of commercial vehicles used for mass transit and industrial and military customers, so the carmaker will benefit from increased public spending as tax receipts rise along with middle-class incomes.

Also of interest is Apple CEO Tim Cook’s ongoing dialogue with Tata. During a trip to China this year, he made a point of first stopping in India to meet with Tata’s senior management team.

No details of that conversation were released, but it took place the same time Apple was rumored to be ramping up its investment in the smart car market.

Given Apple’s established relationships in China, it’s not much of a stretch to envision the company partnering with Tata to sell Apple’s technology-­enhanced smart cars throughout Asia.

Tata trades at only 7 times forward earnings, about the same as Ford (F) and General Motors (GM).

But Tata is not an American carmaker, so it should steer clear of any hostilities that may erupt if ­President-elect Donald Trump follows through on his promise to kill the Trans-Pacific Partnership trade agreement.

In fact, Tata could be the primary beneficiary of such an event, as it is one of the few carmakers outside of the U.S. that could immediately fill the supply void that either stiff tariffs or an embargo would create in a potential trade war.

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