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Mass Recall Hurting Toyota (TM) Shares

Ian Wyatt

Bad publicity never fails to damage a company’s stock. And having to recall 7.4 million cars certainly qualifies as bad publicity.

That’s what’s plaguing Toyota (NYSE: TM) shares today after the company announced that its power-window switches on certain 2005-2010 models may present a fire hazard. Camrys, Corollas and RAV4s are among the faulty brands the automakers are recalling. Cars made between July 2005 and May 2010 are the affected brands.

That’s a lot of lost inventory and squandered shipping costs. Even worse, it’s the second 7 million-plus vehicle recall Toyota has had to make since 2010.

Once again, the bad publicity is hurting the stock. Toyota shares are down 2% today to fall to a two-month low of $74.60.

Of course, if the stock continues to fall it could create a good buying opportunity. As our own Kevin McElroy constantly preaches, it’s smart to buy solid companies after bad news.

Like most car companies, Toyota struggled mightily during the recession. But it has since recovered, posting its largest profit in four years in the second quarter. Of late, its performance has indeed been solid.

Meanwhile, the stock has risen 10% this year and is still trading at just over nine times forward earnings.

Today’s recall announcement could wreak havoc on Toyota shares for another few days. If so, it could be just the thing to make the stock cheap enough to buy.

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