Dear Mr. Berko: It's good to see your column back again in a South Florida publication. Two years ago, we bought a Subaru Outback crossover. We liked it so much that we bought a Subaru Forester as a second car late last year. I'd like to buy Subaru stock, but I can't find it listed anywhere. Where can I find it? And please tell me whether you think the stock is worth buying. — NE, Fort Lauderdale, Fla.
Dear NE: You're looking in all the wrong places. Though you probably know that the demand for Subaru's Outback and Forester models is so strong that Subaru is in the process of expanding its American plant to produce another 100,000 vehicles by the spring of 2017, you probably didn't know that when spelled backward, "Subaru" is pronounced "you are a bus."
Subaru (the Japanese name for the Pleiades star cluster, or the Seven Sisters) is the automobile manufacturing division of Fuji Heavy Industries (FUJHY-$18). The company is the 18th-largest automaker (by production) in the world. Subaru is different from its Japanese competitors in that 75 percent of its cars and parts are still made in Japan. Its only overseas manufacturing facility — which is in Lafayette, Indiana — is currently in the process of trying to handle record demand. Owning shares of parent Fuji Heavy Industries is the only way to own shares of Subaru. Fuji should earn $2.54 a share this year, and its 70-cent dividend yields 3.8 percent.
Fuji Heavy Industries is a $31.6 billion-revenue company with a very impressive 13.3 percent net profit margin, which is 2 1/2 times better than Ford's and General Motors'. Frankly, if Ford and GM were managed as well as FUJHY, those issues might be trading at twice their current prices. This year, Subaru may sell over 1 million vehicles, which would account for 92 percent of FUJHY's 2016 revenues. FUJHY employs 31,000 workers to manufacture and sell automobiles and their various parts. The remaining $3 billion of revenue is derived from the sale of aerospace-related machinery and components, agricultural machinery and components, and construction machinery and components.
Subaru's product line is intentionally limited, and management focuses on building safe, fuel-efficient, reliable all-wheel-drive vehicles. Demand is booming, and Subaru is on track to having its seventh consecutive record sales year in the U.S. However, record sales are made easier by anything-goes financing. Dealers are super eager to sell cars, and the banks are extra eager to lend money so that together they can get pet pigs approved for seven-year no-money-down loans.
Though Subaru is earning record revenues in the U.S., the story isn't so positive in the rest of the world. Sales in Japan are off 3 percent from a year ago, and revenues from China and Europe remain flat. As a result, the price of FUJHY shares has fallen 66 points in the past dozen months. Despite all that, Thomson Reuters, Charles Schwab and Credit Suisse have "buy" ratings on the stock and the price talk of $21-$24 in the next dozen months.
Whereas Ford and GM will probably post lower revenues in 2017, the consensus is that Subaru could have an eighth consecutive record sales year in the U.S. And helping next year to be another record year will be the Subaru Impreza, a compact sedan to be built at the expanded Lafayette plant on a new global platform. Next year should be a good year for FUJHY, and there's a possibility that FUJHY's superb management team will increase the dividend.
According to Market Watch, there are 17 brokerages following FUJHY. Nine have "buy" ratings. Two have "overweight" ratings. Five brokerages rate FUJHY a "hold." And one brokerage recommends that investors "sell." I'd buy the cars because of their impressive reputation for quality. But my gut tells me not to buy the stock. Something doesn't feel right to me.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.