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Tickers in this Article: HMC, DAI, F, TTM, TM
Are you sitting down? You might wish you were when I tell you which industry's stocks are poised to post the biggest gains in 2009. It was supposed to be a train wreck of a group, between tightened credit, a failing economy and financial woes so deep that the Federal Government had to step in. No, not the banks - it's the automakers. The S&P 1500 Automobile Manufacturers Index ruled 2009 with (at the time of this writing) an over 200% gain from the end of 2008.

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It's a stunning gain, but also an incredible turn-around story.

From the Beginning
Ford Motor Co.
(NYSE:F) has probably emerged as the U.S. automaker industry's shining star. After losing $14.6 billion in 2008, the company swung back into the operating black in Q2 and Q3 of this year. If the analysts are right and Ford earns 24 cents per share in Q4, it still won't be enough to turn a full-year profit. However, it's worth noting Ford easily topped earnings forecasts in its last three quarters.

And make no mistake; Ford's doing it the old-school way - by selling more cars. Last quarter's sales rolled in at $30.9 billion, which was just a hair under Q3 of 2008's figure of $31.7 billion.

Last quarter was also the second consecutive quarter the company's top line moved higher. Oh, it's still not on par with the $40-45 billion quarters the company was doing before 2008. However, on a year-over-year basis, the numbers should finally start to look like a glass half-full.

Others in the Race
Daimler AG's (NYSE:DAI) fiscal progress is starting to take the same shape, albeit it at a much slower pace. Daimler turned a small profit in the quarter ending September 30, 2009. Honda Motors (NYSE:HMC) and Toyota (NYSE:TM) both turned the profit corner within the last two quarters, though neither did it with a stronger top line; year-over-year sales last quarter were down about 1/3 for each.

India's Tata Motors (NYSE:TTM) - which now owns Jaguar and Land Rover - has trumped them all with huge year-over-year sales spikes in the last few months. Unit sales on a year-over-year basis surged by 62% in November; October's sales were also up 34%.

But are these skyrocketing stocks buys now, even with a backdrop of improving numbers? That's where things take an even more stunning turn - a turn you wouldn't expect in the shadow of 200% gains from any stock. (Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks, read Cyclical Versus Non-Cyclical Stocks.)

Investors Aren't Crazy
In the interest of time and space, I won't immerse you in the projections for all these companies. Let's just look at a forward-looking P/E ratio for each, and take them at face value.

Company
Next Year\'s Projected P/E
Honda Motor (NYSE:HMC)
20.7
Toyota (NYSE:TM)
26.6
Daimler AG (NYSE:DAI)
41.1
Ford (NYSE:F)
19.7
The earnings multiples themselves are fair and palatable, but it's questionable if these companies can even come close to producing these kinds of numbers in 2010.

To show you what I mean, let's compare last quarter's EPS (when profits emerged again) with next year's expected EPS for each stock...

Company
Last Quarter\'s EPS
Next Year\'s Projected EPS ($)
Honda Motor
29.8 yen/33 cents
$1.63
Toyota
6.96 yen/7.7 cents
$3.12
Daimler AG
0.04 euros/5.8 cents
$1.28
Ford
26 cents
$0.48
Though there are a couple of aggressive outlooks, none are beyond belief.

Reaching Goals
Yes, Daimler and Toyota both have a lot of work to do to get to their goal. Bear in mind, however, that last quarter was the first profitable quarter for both in a while, and the companies may not have developed full momentum at the onset of their last reported quarters. Ford and Honda both had running starts last quarter, thanks to momentum developed two quarters ago. So, Daimler and Toyota should turn in results this quarter, similar to what Honda and Ford posted last time around. (The math may be simple, but to make informed investment decisions, investors need to understand the many varieties of EPS and what each represents. See Types Of EPS.)

The Bottom Line
The projected full year P/E ratios are believable. Two of these companies are already on the right pace, and the other two will likely be on the right pace by the end of the current quarter. As intimidating as a 200% gain over the course of a year can be, in this case, the valuations aren't excessive. The bulk of the fast gains may be in the past, but prices are still reasonable, relative to likely results.

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