Although the company and the industry as a whole (see industry 52-week chart) have fallen on hard times, there is little doubt that Toyota will manage through this slowdown. People will resume buying cars again once the economy improves and Toyota will remain a leader in many classes. Toyota seems to us one of the best run companies in the auto industry and will continue to be one of the strongest global competitors.

As for our Ockham valuation, we continue to rate TM as undervalued because based on historical norms the stock is undeniably cheap. Even as sales have slackened, Toyota’s price-to-sales is currently .40x versus its historically normal range of price-to-sales of .58x to .90x. Likewise, now that TM’s price is $66.37 and its price-to-cash earnings ratio is 3.03 (as of last reporting), we are very positive on its outlook from the cash earnings perspective. In fact, TM is now trading a full 51% below its average historical price-to-cash earnings ratio at these profit per share levels. Of course, we are concerned about the company’s impending slip into negative earnings, but if we are near the bottom in car sales, the stock could rebound nicely in the year ahead.