Toyota (TM) has come under fire recently on continued coverage of its brake recall, big incentives to boost TM sales and rumors of a Toyota dividend cut. Some investors are fleeing this stock like a rat from a sinking ship, while others want to buy Toyota while TM stock is cheap.
So what should you be doing? Well a look at the fundamentals behind Toyota shows that the smart thing to do is park this stock and walk away. Let’s look at some of the facts behind TM stock and what it means for investors:
TM Stock Performance: Ourch! That’s the best way to describe the drop in stock price for Toyota Motor Corp. from its January high of $91.78 to its low of $71.78 just 2 short weeks later. News of the largest recall and highest-ever fine in auto-maker history due to dangerous acceleration reports on its vehicles were the culprits. Today the stock is trading in the $80-range and many investors are wondering if now’s the time to buy. After all, Toyota shares are still below their 2007 pre-market crash of $100 per share.
Toyota car sales: Car sales fell 13% in 2009 as a whole for the company. And that was before the massive recalls and the more recent news that the company was suspending sales of the 2010 Lexus GX 460 after Consumer Reports magazine urged buyers not to buy the sport utility vehicle, calling it a “safety risk” that could roll over. Like all auto-makers Toyota is doing its part to offer buyers special incentives to purchase from its family of vehicles. As a result, first-quarter sales are up 40% year-over-year for the company with an especially strong March showing.
Toyota Earnings: While sales may be on the upswing for now, my screens are showing the stock still has a ways to go. Toyota Motor Corp. (TM) has to deal with the cost of the more than 8.5 million cars under recall. The company recently announced it expected a $2 billion hit in its operating profits as a result of recall repairs on tap. Analysts will be watching upcoming earnings closely for the resulting impact. In its most recent quarter, Toyota reported earnings of $1.09 per share. This topped the $-0.05 consensus of analysts covering the company. But analysts are still rating the upcoming average earnings estimates at -0.45%.
TM ‘Quant’ Ranking: In the United States, Toyota is particularly in the hot seat, with pending class-action law suits, hearings before Congress, and so far, non-stop recalls. Its reputation is tarnished and they have a long road ahead to regain the trust of the American public. The sticking point is trying to gauge just how long that’s going to take. As a result, individuals and institutions alike are steering clear of the stock. That’s why my proprietary Quantitative screens give TM the worst possible grade of F. There just is not a sufficient amount of buying pressure to support the stock.
The Verdict on Toyota stock: Without sufficient buying pressure, my Portfolio Grader stock ranking database rates Toyota Motor Corp. (TM) a Total Grade of D, which means it’s a “Sell.” You should not buy shares of this auto giant in the near-term. And if you already own the stock, you should seriously consider selling your shares. It’s stunning to think that just two years ago Toyota could boast the title of the world’s most profitable car maker. This mighty giant has fallen hard. And while today, the stock is down for the count, I have no doubt Toyota is going to put up one heck of a fight to reclaim its former glory.
As of this writing, Louis Navellier did not own positions in any of the stocks mentioned here.