Why Honda is poised to rev up returns
This leading automaker should benefit from pent-up consumer demand, the rising age of cars on the road, and the introduction of new models.
Based in Tokyo, Honda Motor Co. Ltd. (HMC) is one of the world’s leading sellers of automobiles, with a well-deserved reputation for quality and reliability. Under the Honda and Acura brands, the firm sells autos, trucks, motorcycles and all-terrain vehicles.
Sales exceeded $130 billion during the last 12 months. However, many consumers put off purchasing a new vehicle during the recent worldwide economic slowdown. That situation, I believe, is about to change.
The age of the average vehicle on U.S. roads recently hit an all-time record: 11.4 years. There is enormous pent-up demand for new cars and trucks. And we are beginning to see that demand show up in the Honda sales numbers.
In the most recent quarter, sales jumped 16.3%. And they are likely to climb sharply higher in the months ahead. Honda will earn approximately $2.50 a share in 2013. But I estimate net income will climb 40% in the year ahead.
One reason is new model introductions. Another is the weaker yen. A declining currency makes Japanese cars more competitively priced in foreign markets.
And most of Honda’s sales, of course, are exports. We got a sign of what is ahead when Toyota reported unexpectedly strong sales and earnings. Plus, Honda yields 5%. And that dividend should rise with earnings in the weeks ahead.
In short, rising demand, a falling yen and new model introductions should drive this Japanese blue chip sharply higher.
So pick up Honda shares at market today. And place a protective stop at $32. If you prefer to play this one more aggressively, try the April $45 calls, which last traded at 60 cents.
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