Auto Market Problems Already Priced Into Toyota Stock

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If you’re hesitant to invest in Toyota (NYSE:TM) stock now, you’re not alone. The outbreak of the novel coronavirus has left a lot of automotive market investors jittery and hesitant to jump back into the fray.

toyota stock

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And there’s no denying that early 2020’s peak-to-trough decline in the Toyota stock price was swift and unsettling. From February through the middle of March, shareholders watched in horror as Toyota stock tumbled from $143 and change to the $108.50 level.

Granted, the stock price has recovered some of that loss. However, some scathing words from a well-known analytic firm might scare some prospective investors away from Toyota stock. At the end of the day, though, you have to analyze the data and form your own conclusion.

A Rough Rating

When Moody’s issues a warning about a company, people sit up and listen. Maybe they should or maybe they shouldn’t, but Moody’s has an undeniable influence on the financial markets.

In the case of Toyota stock, Moody’s has some good things to say, but also a preponderance of not-so-good things to say. In the “good” column is the recent affirmation of an “A1” rating. That’s basically a thumbs-up from Moody’s, so you’d think the analytic firm would have a broadly positive outlook on Toyota.

But not so fast, dear reader. In the “not-so-good” column is the change of outlook to “negative” as Moody’s delivered a verbal karate chop to the embattled Japanese automaker.

You might accuse Moody’s of sending mixed messages as the firm cited Toyota’s “excellent liquidity” as justification for the “A1” rating. At the same time, evidently the outlook is “negative” owing to factors such as the “rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines.”

Moody’s also predicted “a steep decline in global vehicle sales in the fiscal year ending March 2021 (fiscal 2020) due to the effects of the coronavirus,” which would naturally impact Toyota’s bottom line.

The Same Old Story

That might sound like a whole lot of reasons to avoid Toyota stock. However, all of those factors, including the oil-price shock and the vehicle-sales decline, can be traced back to the coronavirus.

So really, Moody’s isn’t presenting us with anything new here. The world is already recovering from the fiscal impact of the coronavirus and stock prices are reflecting this. In the United States, the government has made it crystal clear that it will do whatever it takes to soften the economic blow of the pandemic.

In short, Moody’s seems to be rehashing the same story that we’ve all heard before. Grave concerns about the fiscal impact of the coronavirus would have been more timely in February or March. Today, both the economic damage and part of the recovery have already been priced into the equities market.

For instance, let’s consider the U.S. automotive market, which is an important part of Toyota’s business. In the month of May, there was a marked pickup in the pace of vehicle sales. On an annualized basis, the monthly sales averaged 12.2 million vehicles.

In April the annualized vehicle sales rate was only 8.6 million. All of the fears that the vehicle sales slump would worsen through the summer seem to be overstated.

Moreover, Toyota had expected to sell only 125,000 vehicles in May. The actual result, in contrast, was over 165,000 vehicles sold for the month. Thus, if the fear of a crumbling automotive market is holding you back from buying Toyota stock, the data should assuage your concerns.

The Takeaway on Toyota Stock

Perhaps Moody’s is hedging its bets in issuing both an “A1” rating and a “negative” outlook on Toyota stock. Be that as it may, informed investors should consider the negativity to be already known, understood, and fully priced into the shares.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

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