After Nvidia and Meta, What Was the Best Performing Mega-Cap Stock in Q1 2024? The Answer Might Surprise You.

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Mega-cap stocks have always found takers in the stock markets, irrespective of their valuation or soaring prices. Typically, “mega-cap” companies have a market cap of more than $200 billion, and generally demonstrate an established track record of consistent profitability, robust fundamentals, strong brand value, and leading market position.

Unsurprisingly, shares of chipmaker Nvidia (NVDA), the defining company of the generative AI revolution, have delivered the most upside of any mega-caps this year. Despite broader market turbulence to start Q2, the Jensen Huang-led company's jaw-dropping run shows no signs of stopping. NVDA's Q1 return of 82.46% absolutely dwarfs the second runner-up - which happens to be its “Magnificent Seven” peer, Meta Platforms (META), up 37.33% through the first three months of the year.

However, there's another mega-cap company that virtually tied META's Q1 returns with a gain of 37.25% during Q1 - and it's somewhat unexpected, since it's not exactly a name at the leading edge of artificial intelligence (AI) breakthroughs. And it's not a major pharma company at the forefront of some pathbreaking medical discovery, either. In fact, it's actually an automaker.

About Toyota Motor Stock

Founded in 1937 by Kiichiro Toyoda as an offshoot of Toyoda Automatic Loom Works, Toyota Motors (TM) is the world's largest automaker. The company designs, manufactures, and sells vehicles under the Toyota brand, as well as Lexus and other luxury lines. It also offers financial services like car loans and insurance to customers worldwide.

Commanding a market cap of about $328 billion, Toyota Motors stock is up 69.3% over the past 52 weeks, thanks in part to its impressive Q1 returns. TM stock also offers a dividend yield of 1.59%, with the payouts disbursed semiannually. Further, with a payout ratio of just 17.53%, there's scope for future dividend growth.

So, what sparked the Mag 7-sized rally in TM this year? Here's a look.

Toyota's Big Hybrid Bet Pays Off

Arguably, the market for electric vehicles (EVs) is set to explode in the years ahead. However, as consumers cast a wary eye toward the current charging infrastructure and still-steep vehicle prices, adoption of pure EVs has lagged. This is where hybrid EVs come in, with that corner of the market set to reach about $444 billion by 2030, clocking a CAGR of 7.3%.

That means Toyota's focus on developing its hybrid fleet - which includes the Prius, Camry Hybrid, RAV4 Hybrid, and Highlander Hybrid - is looking particularly prudent right about now. 

That focus was reflected in the company's latest quarterly results, too. In fiscal Q3, Toyota reported hybrid car sales of 951,000, which represented yearly growth of 47%, and accounted for 32% of its global retail sales.

Executive Vice President Yoichi Miyazaki reiterated the company's focus on hybrid vehicles, noting expectations for hybrid car sales to rise to 5 million by around 2025, up from 3.4 million in 2023. Miyazaki said on Toyota’s Q3 conference call, “Hybrids are being recognized as a realistic solution to achieve carbon neutrality.”

Investing in EV Battery Tech

That said, Toyota is hardly slacking off in the EV race. To compete with Tesla (TSLA), they're accelerating development of solid-state battery technology. Their goal? Mass production of next-generation batteries, on par with existing EV battery production rates.

Solid-state batteries offer significant advantages: faster charging, potentially longer range, and reduced fire risk compared to standard EV batteries. This translates to electric cars with a game-changing range of potentially 750 miles – more than double Toyota's current EVs – and charging times as quick as 10 minutes. For perspective, the leading Tesla Supercharger network offers the equivalent of a 200-mile range after a 15-minute charge.

Toyota anticipates launching these groundbreaking batteries in 2027 or 2028. This could put them at the forefront of EV technology, boasting vehicles with a staggering 745-mile range – exceeding any gasoline-powered car today – and the convenience of 10-minute charging.

Is Toyota Motor Stock a Good Buy?

Even after Toyota's impressive rally this year, the stock still looks reasonably valued. TM is trading at a forward price/earnings ratio of 10.92, compared to the industry median of 16.78. Similarly, the price/cash flow multiple of 7.38 is a discount to the industry median of 10.60, while the forward price/sales of 1.16 is only a modest premium to its peers.

In terms of growth, analysts are expecting the company to lead the industry by a wide margin. Forward revenue growth for TM is pegged at 7.8%, compared to the sector median of 3.9%, with forward EPS growth of 94.4% towering above the expected 2.69% bottom-line growth of its rivals.

Overall, analysts remain optimistic about Toyota stock, and have deemed it a “Moderate Buy” on average. Out of 6 analysts covering the stock, the “Strong Buy” and “Hold” ratings are evenly split. Wall Street's target price is $260.50, which indicates expected upside potential of about 8.6% from Tuesday's close.

On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.