Stock pick Toyota reports a blow out quarter on weak yen and then tries to sound pessmistic

08/02/2013 7:59 pm EST


Jim Jubak

Founder and Editor,

For a company that just (August 2) reported an 88% increase in operating profit, Toyota Motor (TM) was remarkably pessimistic.

In its guidance Toyota raised its outlook for operating profit in the fiscal year that ends in March 2014 to “just” $19.6 billion—at 1.94 trillion yen that was well short of the record 2.27 trillion yen operating profit analysts are projecting. The company also warned of a slowdown in Thailand and India and for slower sales in the U.S. market due to Detroit’s strong line up of light trucks.

I’m pretty sure that none of those worries matter as long as the Abe government doesn’t have a psychotic break and adopt a strong yen policy. A falling yen accounted for about 80% of the company’s increased operating profit in the quarter. Toyota’s net profit margin is projected to climb to 6.7% in fiscal 2014 from 4.4% in the fiscal 2013 year that ended in March and from just 1.5% in fiscal 2012.

In its forecast for fiscal 2014 Toyota assumed an exchange rate of 92 yen to the dollar. With the yen already lower at 98.94 to the dollar, I think Toyota will pick up a significantly bigger current boost in fiscal 2014 than the company figured into its guidance.

And it’s not like Toyota doesn’t have some solid fundament improvements rolling its way in fiscal 2014. A new Corolla will go on sale in North America and Toyota will introduce a new compact car in emerging markets. That new compact will help Toyota close its sales gap in Southeast Asia, which accounts for 10% of Toyota’s sales, with Honda Motor’s (HMC) Brio Amaze.

Toyota is a member of my Jubak’s Picks portfolio As of August 2 I’m raising my target price on the New York traded ADRs to $160 by March 2014 from $151.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Toyota Motor as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at
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