Revolutionary shifts towards electric vehicles (EVs), performance-driven car upgrades, and the ongoing digital transformation through IoT, AI, and blockchain are creating lucrative opportunities in the auto industry. So, I present robust auto stocks O’Reilly Automotive, Inc. (ORLY), Hino Motors, Ltd. (HINOY), and Cars.com Inc. (CARS), which are poised to capitalize on the industry tailwinds and generate stable returns this week.

In October, new vehicle sales in the U.S. totaled 1,211,141 units, marking a 2% year-over-year increase. This growth is attributed to a surge in demand for electric vehicles (EVs) and the ongoing economic recovery of the nation.

Additionally, higher inventory levels, increased product availability, and downward pricing pressure have resulted in 13 consecutive quarters of EV sales growth in the United States. Electric vehicle (EV) sales in the U.S. reached a record-breaking 313,086 units in the third quarter, surpassing 300,000 for the first time and marking a 49.8% increase from the same quarter last year. Year-to-date, EV sales through September exceeded 873,000 units, putting the market on track to surpass 1 million, possibly achieving this milestone in November.

Moreover, global car sales are experiencing a resurgence in 2023, rebounding strongly from the disruptions caused by the COVID-19 pandemic and supply chain issues in previous years. Forecasts indicate that the European and US markets will achieve double-digit growth this year, contributing to an estimated 8% global increase in light vehicle sales for 2023.

In addition, the surging populations’ rising per capita income and inclination towards convenience while traveling are propelling the global auto market. The global automotive market is expected to grow at a CAGR of 3% and reach $3.58 trillion by 2031, as per a report by Business Research Insights.

Besides, the automotive parts market is influenced by car owners seeking to improve their vehicles' performance. Additionally, the global transportation sector's transition to electric and hybrid vehicles creates fresh prospects for manufacturers of auto components. As a result, the auto part market is expected to expand at a CAGR of 7.5% from 2023 to 2032.

Furthermore, the automotive sector is undergoing a digital transformation driven by technologies such as the Internet of Things (IoT), artificial intelligence (AI), and blockchain, leading to notable advancements in manufacturing. Service providers are leveraging AI-based vehicle inspections to broaden their scope and streamline costs.

Considering these conducive trends, let's look at the fundamentals of the three best auto stocks, starting with number 3.

O’Reilly Automotive, Inc. (ORLY)

ORLY is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories. Its offerings include new and remanufactured automotive hard parts and maintenance items.

On October 26, 2023, ORLY announced that it had repurchased 0.9 million shares at an average price of $938.11 per share, investing $800 million during the fiscal third quarter that ended September 30, 2023. Currently, the company has $712 million remaining under its current share repurchase authorization.

In the fiscal third quarter that ended September 30, 2023, ORLY’s sales increased 10.7% year-over-year to $4.20 billion. Its gross profit rose 11.7% from the year-ago quarter to $2.16 billion. The company’s net income and EPS grew 11% and 16.9% from the prior-year quarter to $649.83 million and $10.72, respectively.

The company recently issued an updated guidance for the fiscal year 2023, outlining key financial metrics. Anticipating between 180 and 190 net new store openings, the projections include comparable store sales growth in the range of 7% to 8%. Total revenue is estimated at $15.7 billion to $15.8 billion, with gross profit expected to be 50.8% to 51.3% of sales and operating income from 19.8% to 20.3% of sales.

ORLY’s EPS and revenue are expected to rise 8.8% and 5.4% year-over-year to $9.11 and $3.84 billion in the fiscal fourth quarter ending December 2023. It surpassed EPS and revenue estimates in all of the four trailing quarters, which is remarkable.

The stock has gained 17.9% over the past year to close the last trading session at $978.61. It soared 3.4% over the past month.

ORLY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has an A grade for Quality and a B for Sentiment. It is ranked #24 among 61 stocks in the A-rated Auto Parts industry.

Beyond what is stated above, we’ve also rated ORLY for Growth, Value, Momentum, and Stability. Get all ORLY ratings here.

Hino Motors, Ltd. (HINOY)

Headquartered in Hino, Japan, HINOY manufactures and sells trucks, sightseeing buses, route buses, and industrial diesel engines. The company is also involved in the production of machined parts, forged parts, dies, and electrical components, as well as the assembly of automobiles and unit parts.

On October 27, HINOY unveiled its initiatives for carbon neutrality, aiming to address societal challenges such as environmental issues, logistics problems, an aging population, and the need for safety, emphasizing the importance of offering products and solutions contributing to carbon neutrality, labor efficiency, and safety.

For the six months that ended September 30, 2023, HINOY’s net sales increased 3% year-over-year to ¥755.39 billion ($5.08 billion). Its gross profit rose marginally from the year-ago value to ¥124.01 billion ($824.10 million). The company’s ordinary profit stood at ¥6.29 billion ($42.31 million) and comprehensive income amounted to ¥18.67 billion ($125.58 million).

Analysts expect HINOY’s revenue to rise 66.3% year-over-year to $10.35 billion in the current fiscal year ending March 2024.

HINOY plunged 11.9% over the past three months to close the last trading session at $35.25.

HINOY’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.

HINOY has a B grade for Value and Stability. It is ranked #23 in the 52 stocks in the B-rated Auto & Vehicle Manufacturers industry.

In addition to the POWR Ratings I’ve highlighted, you can see HINOY’s ratings for Growth, Momentum, Quality, and Sentiment here.

Cars.com Inc. (CARS)

CARS operates as a digital marketplace and provides solutions for the automotive industry. Its platform connects car shoppers with sellers. The company offers services that connect sellers with buyers, provide financing tools, and empower shoppers with digital resources for car buying decisions.

On November 2, CARS successfully acquired D2C Media Inc., a prominent automotive technology and digital solutions provider in Canada, for CAD105 million ($76.54 million) in cash at closing, with potential additional performance-based consideration of up to CAD35 million ($25.51 million). This strategic move expands CAR's geographic reach, establishing it as a leading automotive digital solutions provider in Canada.

On October 17, CARS unveiled its new brand, "Cars Commerce," consolidating various commercial names. The goal is to streamline the car buying and selling process through a comprehensive platform covering pre- and post-sale activities, including a marketplace, digital experience, trade and appraisal services, and a media network for increased industry connections and transparency.

For the fiscal third quarter ended September 30, 2023, CARS’ total revenue increased 5.9% year-over-year to $174.33 million. Its operating income came in at $14.32 million. The company’s net income and earnings per share stood at $4.49 million and $0.07, compared to a net loss and loss per share of $2.94 million and $0.04 in the year-ago quarter. Its adjusted EBITDA came in at $49.49 million.

The company anticipates fourth-quarter revenue between $177 million and $179 million, showing a year-over-year growth of 5.2% to 6.4%. This outlook is supported by ongoing dealer and OEM adoption of the Cars Commerce Platform, with Dealer Revenue expected to drive growth. The guidance also includes revenue from acquiring D2C Media Inc., contributing approximately 1.5% to total revenue in the fourth quarter.

For the fiscal fourth quarter ending December 2023, CARS’ EPS and revenue are expected to increase 56.5% and 6% year-over-year to $0.52 and $178.38 million. The company has exceeded the revenue estimates in three of the trailing four quarters.

The stock returned 39.2% year-to-date to close the last trading session at $19.17. It has gained 12.9% over the past month.

CARS’ strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.

It has a B grade for Value. Within the Auto Dealers & Rentals industry, it is ranked #3 among 21 stocks.

Click here to see CARS’ Growth, Momentum, Stability, Sentiment, and Quality ratings.

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ORLY shares were trading at $983.41 per share on Tuesday morning, up $4.80 (+0.49%). Year-to-date, ORLY has gained 16.51%, versus a 19.79% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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