Auto stocks across the board have sold off recently. We saw poorly received quarterly earnings releases from not just Tesla (NASDAQ:TSLA), but Ford (NYSE:F) and General Motors (NYSE:GM) as well.
However, when it comes to “buying the dip,” instead of buying any of these names, you may want to consider automotive stocks that have been under pressure for an extended period. So much pressure that instead of merely correcting to a valuation more in line with fundamentals, each of these names has become oversold and underappreciated.
In other words, the market has priced in uncertainty and near-term challenges to too great an extent while paying little to no attention to their still-promising long-term prospects. Admittedly, it may take some time for challenges to dissipate and for results to improve. This step will be necessary when it comes to driving a shift in investor sentiment.
Even so, if you are patient, and have no issue going contrarian, each of these auto stocks is a great opportunity at today’s prices.
Li Auto (LI)
As recently as a few weeks ago, it seemed Chinese EV stocks like Li Auto (NASDAQ:LI) were gearing up to enter rebound mode. At the time, upbeat delivery results led to renewed bullishness for U.S.-listed shares in EV makers located in the world’s largest EV market.
After experiencing an extended slide since March, LI stock experienced a moderate move higher, from the high-teens to the low-$20s per share. Since then, however, stocks in this category, including LI, have reversed course. However, this fast return to bearishness could work in your favor with this undervalued China EV stock. In contrast to peers like Nio, Li Auto isn’t experiencing high cash burn.
Rather, the company is consistently profitable. The company also trades for only 18x forward earnings. This valuation may not sound super low, but it belies this company’s strong growth forecasts.
Analysts’ consensus expectations are for Li earnings to rise by more than two-thirds over the next year. Even if this EV contender merely drops “better than feared” results in the coming quarters, it may prove sufficient to re-rate shares back to a higher valuation.
Stellantis (STLA)
Stellantis (NYSE:STLA) is a leading incumbent automaker in North America and Europe. Well-known makes from this manufacturer include Chrysler, Dodge, Jeep, Ram, Fiat, Opel, and Peugeot. In recent months, Stellantis shares have steadily slid lower in anticipation of less stellar fiscal results.
Those fears were justified as STLA stock took another big tumble after reporting disappointing fiscal results. During the first half of 2024, weak demand led to a 48% year-over-year drop in profitability. Yes, it may seem like Stellantis has become a “falling knife” situation. However, there may still be merit in going contrarian with what has become one of the most underloved auto stocks.
Over the next few years, factors like a possible lowering of interest rates could help to reignite automotive demand. Stellantis is also implementing additional cost-cutting measures. To top things off, the automaker is rolling out new EV models and has a low-priced electric Jeep in the works.
This could help drive a profitability rebound in 2025 and beyond, leading to a recovery for STLA, down nearly 40% from its highs and currently trading at the bargain basement price of just 3.6x estimated 2025 earnings.
Toyota Motor (TM)
Since March, Toyota Motor (NYSE:TM) shares have experienced a steady slide to lower prices. As I noted a few weeks back, sales declines only partially explain this sentiment shift for the Japan-based global automotive powerhouse.
Alongside weak demand and its impact on profitability, TM stock has been slammed by a testing falsification scandal in its home market. Irrespective of what has caused Toyota to reverse course, you may want to take advantage of this “buy the dip” opportunity. For starters, recent sales weakness for the company has been limited to specific regions, like Asia and Latin America. Toyota sales remain strong in the U.S. and Europe, especially in EV sales.
As InvestorPlace’s David Moadel recently argued, hybrid and fully electric vehicles keep growing rapidly. They make up nearly 40% of Toyota’s total U.S. vehicle sales. Toyota’s EV strength could counter issues in the quarters ahead, leading to stronger results.
Besides shares rising in line with improved earnings, further EV success may eventually drive a re-rating for this stock, which trades for just 9.3x forward earnings today. In prior years, TM sports a forward price-to-earnings (P/E) multiple in the low-to-mid teens.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in LI.