Should You Buy Toyota While It’s Under $200?

The world’s current car manufacturers are not really anyone’s idea of ​​market-crushing investments these days. Despite some improvement in their share prices recently, globally recognized companies trading on US exchanges have underperformed S&P 500 index so far this year, sometimes considerably.

One of those latecomers is Asia’s biggest auto powerhouse, Toyota Motor (TM 2.87%). In many ways, the famous Japanese company can’t seem to catch a break lately, but it’s cheap at certain valuations. Perhaps its stock is a contrarian buy at a time when Big Auto isn’t particularly hot on the market.

Of strong and weak markets

As a global manufacturer, Toyota is always subject to the whims of its regional and national markets. For the first six months of this year, it was a good news/bad news situation. It was indisputably good that the company maintained the title of car manufacturer no. 1 worldwide in terms of unit sales, with 5.16 million vehicles changing hands during the period.

This figure, however, was almost 5% lower than the same period in 2023. The domestic market has been a bit of a land mine for Toyota as its small car division Daihatsu has been embroiled in a scandal of testing that led to the stoppage of shipments for several months. Toyota’s overall unit sales decline in Japan was ugly, down 32 percent year-on-year.

China’s vast and ever-tempting market was also a disappointment as sluggish economic growth, intensifying competition and significant government support for domestic automakers took a toll. Toyota’s six-month sales fell nearly 11 percent.

Fortunately for the company and its shareholders, there were better markets elsewhere. Many viewed Toyota as something of an anomaly due to its reluctance to produce an extensive fleet of all-electric vehicles (EVs). But EVs aren’t the hot items they once were, and Toyota — which focuses on selling traditional internal combustion engine (ICE) and hybrid EV/ICE models — offers an attractive value proposition.

That’s because some electric vehicles are still very expensive, despite recent discounts. Buying a luxury electric vehicle ca adze The Model S, for example, would set a buyer back at least $68,490.

Many new car buyers clearly preferred models such as the luxury Toyota and the much cheaper Lexus. No wonder the Japanese company’s Toyota and Lexus models combined for a robust North American sales gain of nearly 15% in that half-year. The dynamics were similar in Europe, where hybrid models proved to be popular. Toyota sales were up just over 10% on that continent.

A crash before the bump

These types of positive numbers could be difficult to achieve now and for the foreseeable future. In early August, the Bank of Japan raised its benchmark interest rate from a maximum of 0.1% to 0.25%. It was the first hike of any kind by the monetary authority since 2007. As usually happens with such bumps, many investors and companies piled into the yen, strengthening it considerably. He still needs to lose some serious weight.

Meanwhile, management is busy with a strategic change. Not only does it want to ramp up hybrid production, it also wants to devote more resources to the development of other green vehicles, such as hydrogen-powered vehicles, of which it is one of the leading developers. If the EV monster growth story is truly over, Toyota will be well-positioned to benefit from its alternatives.

There is a “but”, however, with this pullback and the suddenly strong yen. Analysts following Toyota expect a drop in profitability this year, before a rebound next year. They model $21.71 per each of the company’s American depositary receipts (ADRs) for the full current fiscal year 2025, down from $22.58 a year earlier. The crash shouldn’t last, as these experts collectively project a recovery of $22.85 per ADR in fiscal 2026.

Another plus: Rather atypical for a high-cost industrial company, Toyota reliably pays a dividend. These days the yield is just under 2.2%, which won’t make anyone a billionaire, but it’s more generous than the current average of 1.3% S&P 500 component stocks.

I like what I see with Toyota. I think the company has a strategy that, while once considered counterintuitive and outdated by some, has proven to be viable. The relatively strong yen won’t do the company any favors, however its vehicles and technology are popular and I think sticker shock will be limited. The Japanese auto giant knows its business cold and is sure to remain a pacesetter for many years to come. I would be a buyer of its stock, especially at the current price.