Toyota Motor (TM)
By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 4/11/16 Sign up for Cabot Wealth Advisory—it’s free!
Toyota (TM) is the most valuable automobile company in the world today, with a market capitalization of $155 billion. But the company is no longer growing. Revenues at Toyota declined 3% in 2014 and 5% in 2015.
And when growth slows at a company, terrible things can happen to a stock. In fact, one general rule is, the bigger they are, the harder they fall. Thus, its sheer size is the number one reason I’m bearish on Toyota.
Reason number two has to do with the company’s technology. Toyota has done a wonderful thing with its Prius over the past 20 years. It’s proved to the world that there is success beyond the internal combustion engine.
But Toyota has taken a curious turn in recent years. It’s been working on hydrogen fuel-cell technology rather than electric car technology.
This is despite the fact that hydrogen refueling stations are extremely rare, while electricity is ubiquitous; despite the fact that no other automakers are working seriously on hydrogen; and despite the fact that Elon Musk has said that “hydrogen is an incredibly dumb” alternative fuel. Granted, there’s no reason to think that Toyota’s scientists should listen to Musk. But his argument, detailed below (and edited for clarity), appears to make sense.
“Hydrogen is an energy storage mechanism. It is not a source of energy. So you have to get that hydrogen from somewhere. If you get that hydrogen from water, you’re splitting H2O, and electrolysis is extremely inefficient as an energy process. By contrast, if you just took a solar panel and used the energy from that to charge a battery pack directly, you’d find it far more efficient. If you try to split water, take the hydrogen, dump the oxygen, compress the hydrogen to an extremely high pressure (or liquefy it) and then put it in a car and run a fuel cell, it is about half as efficient; it’s terrible. Why would you do that? It makes no sense.”
Time will tell.
In the meantime, Toyota is still shrinking. In the first quarter of this year, sales at the automaker slumped 1.1%, highlighted by a drop of 2.7% in March. And now investors are voting with their feet.
But long-term, as the revolution in electric vehicles unfolds, I see great risk in holding Toyota.
Note: there is one other automobile company that I like. I added it to my Cabot Stock of the Month recently, and every week I give my readers updated advice on both that stock and TSLA. If you’d like to join them, I’d love to have you. For details, click here now.
From Cabot Wealth Advisory 4/30/13 Sign up for free Cabot Wealth Advisory
My stock pick today is a chance to jump on a very big story.
Japan’s economy has been mired in a recession for more than twenty years, a period that the Japanese call The Lost Two Decades or Ushinawareta Nijūnen. Lots of books have been written about why this happened and many political careers have hit the rocks because leaders couldn’t get things moving.
But it looks like something—maybe a massive stimulus package, maybe the declining value of the yen, which supports exports—is finally working. The Nikkei 225 Index, which traded near 39,000 in January 1990 but was trading at 8,700 last November, has now put on a burst of speed and is happily soaring higher at 13,800 and change.
One way to play the resurgence of Japan is by buying Toyota Motor (TM), the largest automaker in the world by units sold. Toyota vehicles include many strong brands, including the Toyota Corolla, Yaris and Camry, Lexus, Scion, 4Runner, RAV4, Highlander, Land Cruiser, Prius and many others.
The resurgence of consumer interest in Japan (which accounts for about 40% of Toyota’s revenue) and North America (25% of revenue) combined with the appeal of a spruced up lineup of cars portends good results for Toyota.
And the company’s attractive cash dividend program (currently paying a forward annual yield of 1.2%) makes for a nice combination of price appreciation and income.
For more information on Cabot China & Emerging Markets Report, click here.
|Toyota Motor (TM)
Toyota City, 471-8571 Japan
81 5 6528 2121
|Index Membership: N/A
Sector: Consumer Goods
Industry: Auto Manufacturers - Major
Full Time Employees: 325,905
4/30/13 Toyota (TM): One way to play the resurgence of Japan