We recently compiled a list of the 7 Best Small Cap Automotive Stocks to Buy. In this article, we are going to take a look at where Garrett Motion Inc. (NASDAQ:GTX) stands against the other small cap automotive stocks.
The International Automotive Industry
The automotive industry is one of the fastest-growing industries, especially with the recent surge in demand for Electric Vehicles (EVs) across the globe. According to a report published by Fintech Futures, the global automotive industry was valued at $4.4 trillion in 2024. The market is expected to grow at a compound annual growth rate of 5.66% to reach $6.7 trillion by 2032. The recent trend of EVs, autonomous vehicles, and innovative technology has revolutionized the automotive sector. The transformation is expected to boost auto revenues by nearly 30% during the projected period.
The international automotive industry market share has been changing drastically during the year. According to a CNBC report published on June 14, Chinese automakers have overtaken the US in terms of sales for the first time. Chinese automakers, led by BYD, sold 13.4 million new vehicles in 2023 surpassing 11.9 million vehicles sold by their US counterparts. On the other hand, the Japanese automotive industry stood undefeated by selling 23.59 million new vehicles during the same year. Moreover, China’s sales growth also outperformed that of the US. The country grew its automotive sales by 23% during the year as compared to a 9% growth by the US.
China has been focusing on growing its exports of the automotive industry to capture the international market. According to another CNBC report published on June 27 Chinese automakers are expected to achieve 33% of the global automotive market share by 2030. As of 2024, China has already captured 21% market share and sales of automobiles outside of China are expected to grow from 3 million this year to 9 million by 2030. Currently, around 59% of Chinese automotive sales come from within the country, with Russia being the largest market for Chinese automotive at 33%. If you want to read more about automotive industry trends you can look at the Top 18 Automotive Industry Innovations and Trends.
The US Automotive Industry Outlook
The United States is one of the key players in the international market. According to a report by Alliance for Automotive Innovation, the sales of new vehicles in the month of June dropped 3.4% year-over-year amounting to 1.32 million. The slow down in the sales is mainly attributed to higher prices and interest rates that hinder a stronger market. However, the full year sales estimates look better, with new vehicle sales expected to reach 16.1 million during the year, indicating a 12.4% increase from last year. On the other hand, on June 25 Reuters reported that uncertainty looms in the US automotive industry as the upcoming elections are expected to reshape the US economy. Cox Automotive reiterated its full year 2024 guidance at 15.7 million units.
The US consumer market has been reluctant to purchase vehicles due to inflation, and some shoppers are expected to keep holding back due to election uncertainty. As per Reuters, around 74% consumers and 81% dealers believe that inflation is the top concern and that the election is likely to influence it. This has led to a sell-off in auto stocks and many companies with strong fundamentals are now available at cheaper prices. With that, let’s now look at the 7 best small cap automotive stocks to buy.
Our Methodology
To compile the list of best small cap automotive stocks to buy we used Yahoo Finance and Finviz stock screeners. We set the market cap range between $250 million to $2 billion to get small cap stocks only. We checked auto manufacturers, auto and truck dealerships, and also auto parts for this article. Once we had a consolidated list of small cap automotive stocks, we selected and ranked the stocks that were the most widely held by institutional investors, as of Q1 2024. The list is in ascending order of the number of hedge funds holders for each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close up of an engine piston with a commercial turbocharger attached.
Garrett Motion Inc. (NASDAQ:GTX)
Number of Hedge Funds Holders: 35
Garrett Motion, Inc. (NASDAQ:GTX) ranks as the second best small cap automotive stock to buy. The company together with its subsidiaries engages in designing, manufacturing and selling of cutting edge technologies for emission reduction and energy efficient solutions for automotive and industrial space companies. The key product line of Garrett Motion, Inc (NASDAQ:GTX) include turbochargers, air and fluid compression technologies, and high speed electric motors for Original Equipment Manufacturing (OEMs) and distributors worldwide. The company has a special focus on zero emission technologies using hydrogen fuel cell systems and also develops key E-Powertrain and E-Cooling compressor products to support the global electrification trend.
The company delivered mixed results for Q2, 2024. It faced some headwinds due to softer global industry trends across both light and commercial vehicle markets. Moreover, issues such as the regional dynamics between China and Europe and commodity deflation impacted the net sales of the company. Net sales of Garrett Motion, Inc. (NASDAQ:GTX) were down 7% year-over-year during the quarter and amounted to $3.57 billion. However, the aftermarket segment of the business witnessed a 7% increase during the same time, indicating strong market demand for its products. Despite market challenges, Garrett Motion, Inc. (NASDAQ:GTX) was able to maintain profitability and achieved an adjusted EBITDA margin of 16.9%, reflecting a 40 basis point increase from the previous quarter. In addition, the company performed well on the financial front by generating $62 million in adjusted free cash flow during the quarter and also reduced its debt by $394 million year-over-year.
A key driver of the company’s potential lies in its research capabilities. Garrett Motion, Inc. (NASDAQ:GTX) made significant strides in zero emission technologies by securing its first series of production contracts for its fuel cell application. This technology along with its E-Powertrain and E-Cooling technologies align perfectly with the market trend of sustainability and regulatory pressures for lower emissions, giving the company a strong competitive edge over its peers. Moreover, the company has demonstrated its ability to make cash and drive profitability by growing its revenue by 2.87% and levered free cash flow by 31% during the past 5 years. It ended the second quarter with a strong balance sheet, with approximately $300 million in cash and cash equivalents.
GTX is trading at 7 times its forward earnings, a 54% discount to its sector. Moreover, its earnings are expected to grow 45% during the year to reach $0.32. Wall Street is also bullish on the stock and 2 analysts have a Strong Buy rating. The average price target of $12.50 implies an upside of 50.60% from current levels.
GTX was held by 35 hedge funds in Q1 2024, with total stakes worth $1.5 billion. Of those, Howard Marks’ Oaktree Capital Management was the top investor in the company and disclosed a position worth $438 million.
Overall GTX ranks 2nd on our list of the best small cap automotive stocks to buy. You can visit 7 Best Small Cap Automotive Stocks to Buy to see the other small cap automotive stocks that are on hedge funds’ radar. While we acknowledge the potential of GTX to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GTX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.