Toyota Motor Corp (ADR) (NYSE:TM) stock has handily trumped the S&P 500 over the last year, with its 30% advance more than doubling the 14% return of the S&P.
Well, there’s a reason the TM stock has outperformed: It’s easily one of the more attractive blue-chip stocks to buy in the market today, and best-in-class in the auto industry.
U.S. auto sales are projected to hit 17 million this year, the highest-volume year since 2005. As the world’s largest automaker by sales volume, that should mean good things for TM stock.
And while the metaphorical pie known as the auto market getting bigger, that’s not the only reason that TM stock looks so compelling.
Toyota’s Slice Is Getting Bigger, Too
You might be surprised to hear that Toyota is growing sales at a faster pace in 2015 than any of its big-name rivals, with sales up 10.5% year-to-date. That may not sound like a lot, but consider its competition:
- General Motors Company (NYSE:GM) has seen a 5.3% YTD rise.
- Ford Motor Company (NYSE:F) sales are up a measly 2% from 2014.
- Honda Motor Co Ltd (ADR) (NYSE:HMC) sales are up 2.6% thus far in 2015.
- Nissan Motor Co Ltd (ADR) (OTCMKTS:NSANY) has moved 3.6% more units so far this year.
You get the point. If these trends continue, the TM stock price shouldn’t have much of a problem continuing its rally. That said, this sales momentum might not even be the largest bullish indicator for Toyota stock.
Currency Windfall, Overseas Expansion
The second catalyst driving TM stock higher is an equally macro-level factor: exchange rates. With the U.S. dollar soaring, foreign carmakers enjoy huge cost benefits as they’re able to manufacture cars at a lower input cost than their American competitors. The U.S. dollar has strengthened 35% against the Japanese yen in just three years.
That advantage is so significant it’s gotten Ford executives whining and asking for international currency manipulation rules. Bloomberg reported in January that Ford CFO Bob Shanks estimated the massive currency fluctuations
“…gives Japanese automakers as much as $11,000 more profit per car and allowed Toyota Motor Corp. to earn an extra $10 billion in 2013.”
That’s a lot of extra scratch. Why not take advantage of it as an investor and pile into TM stock to share in the gains?
Toyota also has big plans to expand in China, the world’s single largest auto market. Specifically, TM plans to drop two hybrid cars in China later this year, which could help the notorious polluter reduce its carbon footprint.
The good news for TM stock is that Toyota has plenty of credibility in creating low-emission vehicles. Its Toyota Prius was the first successful mass-market hybrid car, and it even plans on releasing a hydrogen car, the Toyota Mirai, in 2015.
While the Mirai won’t be an instant game-changer for TM stock, it poses a very real threat to Wall Street darling Tesla Motors Inc (NASDAQ:TSLA) and its efforts to steer consumers away from gas-guzzling traditional cars.
Although, to be fair, TSLA is already having enough troubles of its own. Even without the Mirai around to compete, year-to-date Tesla sales are down 24.5% from 2014 and TSLA stock is off 28% from its 52-week highs as the company struggles to live up to its high-flying valuation.
So, apologies to the TSLA bulls, but I think it’s safe to say that TM is the best auto play right now.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
