Saqib Iqbal, a financial analyst at Trading.Biz has found an auto stock bound to yield 41% in Q1 2024. He is referring to Allison Transmission Inc., (NYSE: ALSN). As one of North America’s leading manufacturers of commercial auto transmissions, Allison Transmission Holdings designs and manufactures high-quality automatic transmissions. Quality, reliability, and fuel efficiency are among the company’s strongholds.
He says, “When I found the intrinsic value of the stock, it’s undervalued by 29%. When you combine this undervaluation with the company’s overall growth, it can yield up to 41%. The company bought back half of its shares while its market value has been reduced most likely due to concerns of electric car adoption.”
Allison Transmission (NYSE: ALSN) ended 2023 on a high note, with record year revenues of $3.035 billion, a 10% increase aided by a 13% increase in the North American on-highway market and an 18% increase in the service parts sector. Earnings per share reached a record high of $7.40, representing a 34% increase. Free cash flow also increased to $186 million.
Saqib says, investing $1000 right now in the stock is worth the try. He states,
“The stock price is $70.57, and for a $1000 you can buy around 14.28 shares. If you look at the undervaluation of 29%, then the price becomes $99.74. So, potential capital gains becomes $412.67. And add a current dividend yield of $0.23 per share. Then the total yield becomes $415.95 (0.23 x 14.28 = $3.28) which is a gain of 41.59%.”
To calculate, he used the following formula:
Potential gains = (Final stock price – Initial stock price) x Number of shares
Dividend earnings = Dividend amount x number of shares
Total = potential gains + dividend earnings