How To Buy Hyundai Stock For Profit
Things to know about Hyundai stock buying in 2016…
The stock market offers very few opportunities to invest in profitable global car companies, without having to spend a small fortune. Right now there are two such opportunities.
Hyundai Motor Company (ticker: 005380.Korea) and Kia Motors (000270.Korea) saw their value drop by more than 10% in November, thanks in large part to an admission of exaggerated fuel economy on their lineup of vehicles sold in the US.
They also face fines from the US Environmental Protection Agency, as well as a class-action law suit.
The companies have already apologized for their “procedural errors” and have promised to financially compensate customers affected by the error.
Investors can expect to receive some level of reimbursement, with their shares very likely to bounce back and make them money once the dust settles.
Hyundai Motor Company, who owns 44 per-cent of Kia Motors Corp., disclosed the issue as October neared an end.
The overstatement of mileage was anywhere from 1 to 6 miles per gallon and affected roughly one-third of the 2011-2013 Hyundai models.
The news caused a selling frenzy among investors, with stock prices dropping to their lowest price in over a year.
The Hyundai stock has bounced back a little, but neither company has fully recovered yet.
Hyundai saw its stock drop 11.3% to $183.62 before jumping back to $194.66. That still falls well short of the $207.09 levels before the disclosure.
Last week’s numbers put it at five times forecast earnings for 2013, well down from the 5.4 times that were in place before the incident.
Hyundai Stocks rated “Buy”
Sanjeev Rana, an equity analyst at Deutsche Bank in Seoul has placed a Buy rating on both automakers and has gone as far as lowering the target price for Hyundai Motor to $285.32.
That adds up to a 40% increase that Rana believes will be achieved sometime next year.
Kia dropped 9.6% to $51.82 after the announcement and has continued to fall, finally reaching $50.90 last Wednesday.
Similar to Hyundai, Kia is at five times forecast earnings, down from the 5.5 times they were at before the announcement. Rana expects that Kia will bounce back with a 40% gain next year, with his projected price now sitting at $72.25.
“I think they should be able to recover,” says Rana. Rana also believes this will happen because of the profitability of Hyundai and Kia companies. Each of them has an operating margin of around 11%, which is second only to BMW.
They are able to do this by combining their efforts in everything from design to sales and manufacturing, which allows them to keep costs down.
The US sales of both are growing by roughly 20% annually, which is about double the industry average.
John Chisholm, chief investment officer of Acadian Asset Management in Boston does not believe that the impact of fines and settlements will be dramatic.
Rana estimates that Hyundai will be on the hook for $368 million, with Kia having to shell out $276 million.
That will amount to about 6$ of operating earnings for each, but could be as low as 2% if they have deployed reserves in case of such problems.
Korean companies tend to be a long-term bet because of the way they are governed. There is zero transparency and their shareholding structures tend to be complicated.
There have even been stories of corruption, with a former Hyundai Motor chairman convicted of embezzlement back in 2006.
James Thom, a portfolio manager at Aberdeen Asset Management in Singapore believes that the biggest issue is one of trust.
Despite all that, both Hyundai and Kia have delivered great results for shareholders since that time.
Hyundai stocks have risen by 499% since November, 2008, while Kia has increased the value of its stocks by an astonishing 807% since March, 2009. It’s believed that the current setback will be minor, with future gains still assured. [Published: Nov, 19. 2012]
