Automakers Rev Up Their Value Engines

 | Aug 08, 2014 | 12:00 PM EDT
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Automakers are generally doing well. The Wall Street Journal reports that year-over-year car sales in the U.S. were up 9.1% in July 2014 and that year-to-date sales were up 5.0% this year vs. the same period in 2013. Statista predicts that worldwide car sales will reach 72.23 million units in 2014, up from 68.69 million units in 2013, an increase of 5.15%.

Not bad, and my James P. O'Shaughnessy strategy has found several automakers that are worthy of a test drive.

The O'Shaughnessy strategy is one of a dozen guru strategies that I created by studying the writings of great Wall Street investors such as O'Shaughnessy, Peter Lynch and Benjamin Graham, and then automating their approaches via computer code, which allows me to analyze any stock in the way that these investors might analyze stocks.

First, let me explain the O'Shaughnessy strategy. It comes in two flavors -- growth and value -- and not surprisingly, automakers, which are not generally high-growth companies, are favored by the O'Shaughnessy value-oriented strategy. This strategy looks for a market cap in excess of $1 billion, cash flow per share greater than the mean of the market's cash flow per share (which is $1.71), total number of shares outstanding in excess of the market average (which is 628 million) and trailing-12-month sales 1.5x greater than the market's mean (which is $21.14 billion).

The companies that pass these four tests are then judged by their dividend yield. Only the top 50 companies based on their dividend yield get this strategy's top recommendation.

All of the auto companies in question exceed the O'Shaughnessy strategy's requirements. Ford (F), for example, has a market cap of $65.86 billion, cash flow per share of $2.79, 4.1 billion shares and sales of $146.30 billion). And it pays a dividend of 2.94%.

German truck and luxury car company Daimler (DDAIF) also easily gets over the strategy's hurdles, while paying a strong 3.85% dividend yield.

Japanese automaker Nissan (NSANY), which is 43% owned by Renault (RNSDF), also exceeds all of the strategy's benchmarks. In addition, it provides the highest dividend yield of these three companies, 4.43%.

Now is the time to hitch a ride on the auto industry's momentum, and these companies are providing good travel deals.



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