The auto-sales cycle may be turning stormy, but that doesn’t mean it is time to batten down the hatches. For those with a little faith in the future, Nissan Motor looks like a bargain.
Auto sales in the U.S. appear to have downshifted for now. This spells tough times for Japan’s auto makers, which count the U.S. among their biggest markets.
Toyota is also feeling more profit-sapping pain from the strong yen, since a large portion of the vehicles it sells in the U.S. are imports from Japan. Honda and Nissan are better positioned. Nissan’s level of local production means its North American business doesn’t have substantial yen exposure, according to CLSA’s Christopher Richter.
Nissan has several other things going for it. Its product mix is shifting toward SUVs and light trucks, with strong sales for its Rogue crossover SUV constrained only by supply issues. A refreshed Titan pickup and the launch of a new Armada SUV should help, too, in the low-gas-price environment.
In Asia, Nissan stands to benefit from coming to the rescue during Mitsubishi Motors’ fuel-economy-test scandal. Nissan is essentially picking up Mitsubishi at a good price. Plus the deal makes strategic sense. Mitsubishi is strong in places Nissan isn’t, such as Southeast Asia. And since Mitsubishi doesn’t have an auto finance business, its million-plus vehicle sales can plug into Nissan’s finance operation.
Like most auto makers’ shares, Nissan’s have been weighed down this year by concerns that sales in the U.S. can’t get much better. And it does have substantial production in the U.K. that is exported to Europe, and could face tariffs after Brexit is negotiated.
But for these risks, consider that Nissan trades for 7 times forward earnings, according to FactSet, versus nearly 11 times for Toyota and Honda. Nissan has long traded at a discount to its peers, but the gap is about double the five-year average. The 4.2% trailing dividend yield is also attractive—and somewhat secure: In its earnings call last month, the company reiterated its intention to boost the payout this fiscal year.
Nissan appears priced for a smooth ride.
Write to Alex Frangos at alex.frangos[a]wsj.com