122,000 Reasons to Believe This Turnaround Story Stock Will Soar

Stellantis (NYSE: STLA) and rivals Ford Motor Company and General Motors have traded differently over the past year. Stellantis, which recently unveiled a $70 billion turnaround strategy, saw its stock shed more than 40% of its value over the past year, while Ford posted a 25% gain and GM more than doubled that with a 54% annual gain.

Because of Stellantis' harsh sell-off over the past few years, it may actually have the most upside potential of the three stocks for investors willing to take on some risk over the next five years. Let's take a look at a core component of Stellantis' turnaround, why there are early signs of optimism, and what one catch might be.

Image source: Stellantis.

What's Stellantis' plan?

While Stellantis' global $70 billion turnaround will check many boxes across regions, CEO Antonio Filosa made it clear that North America will be a primary driver of success. In fact, of the $42 billion Stellantis has committed for just products and branding over the next half decade, roughly 60% will be invested into North America.

Of the tens of billions pouring into North America, it'll deliver 11 new vehicles by the end of this decade for the Jeep, Ram, Chrysler, and Dodge brands. Stellantis is gearing up to push aggressively with its dealerships and new product while aiming to grow North America volume by 35%, with a heftier 60% gain for its highly profitable Ram brand.

"Our plan for North America is very simple: Get the product right," said Tim Kuniskis, who leads Stellantis' American brands, according to Automotive News. "Right for the market, right for the brand positioning, right for segment expansion, right for growth, and right to recover our customer loyalty."

The flood of new vehicles from Stellantis in North America will help the company move more product faster, with less margin erosion from incentives and deals. The good news for investors is that we might already be seeing signs that the automaker is gaining traction before the massive investment provides additional support.

Q2 shipments tell a story

Data source: Stellantis consolidated Q2 shipments. Shipment figures are in thousands.

The table shows one reason North America is expected to drive this turnaround: There's more growth to be had than in its Enlarged Europe region. North America generated 122,000 units in shipment growth, accounting for 81% of the company's 150,000-unit growth during the second quarter, compared to the prior year. North America's 38% year-over-year growth in shipments carried the automaker through the second quarter.

Stellantis' North America shipments jumped largely due to new or refreshed products and offerings, including the Ram 1500 light-duty HEMI V8, the new Ram 1500 TRX SRT, the refreshed Jeep Grand Wagoneer and Grand Cherokee, and the acceleration of the all-new Jeep Cherokee. It could give investors a glimpse of what's to come as the company funnels more investment into its lucrative Jeep and Ram brands in the coming years.

Now, there is a bit of a catch to North America's 122,000-unit growth last quarter. That's due to Stellantis' planned summer shutdown, which is common for Stellantis, Ford, and General Motors as they adjust factories and production lines. Stellantis admitted that the spike in shipments was due to a surge in inventory ahead of the shutdown. The difference is significant: While North America shipments rose 38%, U.S. retail sales grew a much more modest 6%.

What it all means for Stellantis investors

Yes, the 38% growth in North American shipments is certainly inflated by a surge in inventory, but there is also real momentum building. Stellantis' 6% gain in U.S. sales during the second quarter was its fourth consecutive quarterly increase. Stellantis could offer investors willing to take some risk much upside after its drastic sell-off over the past three years, and keeping an eye on the company's shipments and U.S. sales could be a leading indicator of how quickly its turnaround plan could gain traction.

Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool recommends General Motors and Stellantis. The Motley Fool has a disclosure policy.