When I think of investing in the auto sector, the first names that come to mind are the big automobile companies: General Motors (NYSE: GM), Ford (NYSE: F) or Toyota (NYSE: TM). For investors with a higher risk profile, there is Tesla Motors (Nasdaq: TSLA).

#-ad_banner-#However, there’s one automaker that’s an even better company to own… one that’s undervalued and whose revenues are growing at a much faster rate than many of its better-known competitors.

That automaker is Tata Motors (NYSE: TTM). 

Tata is India’s largest automaker, but it may be better known in the U.S. for buying Jaguar and Land Rover from Ford for only $2.3 billion in 2008. 

In October, my colleague Dave Goodboy talked about Tata as a play on the global auto sales boom. Tata has hit his price target of $40 (which represented upside of about 25% at the time), but based on Tata’s earnings and revenue growth, there is even more upside ahead.

Tata Motors is the largest automobile company in India. The company is also the world’s fourth-largest bus manufacturer and fifth-largest truck manufacturer.

Since Tata Motors is an important part of India’s economy, most analysts are expecting the recent elections to be bullish for the company. In India, the Tata name is the “most revered brand” in the country, according to The Economic Times of India.

Newly elected Indian Prime Minister Narenda Modi is very much pro-business and pro-growth. After his party won the election by a landslide, expectations are that he will be able to enact the reforms India needs. Analysts have already raised their 2015 GDP forecast for India from 5% to 5.5%.(My colleague David Sterman recently gave his take on India’s prospects.)

	Flickr/jaguarcarsmena
	Tata’s purchase of Jaguar Land Rover continues to look like a great move by the company as both divisions are now benefiting from a rebounding global economy.

The auto industry accounts for 6% of India’s economy, so an economic rebound should boost demand for Tata’s vehicles. The demand in India for automobiles has been on the rise for over a decade, and Tata’s share of the Indian market for four-wheeled vehicles was 22% in 2013. Over the past 10 years, Tata has posted a compound annual earnings growth rate of 21.3%. 

Outside of India, Tata’s purchase of Jaguar Land Rover continues to look like a great move by the company (and a mistake by Ford). Jaguar and Land Rover are benefiting from a rebounding global economy. Their status as luxury brands is helping boost sales in North America, Europe and China. New product rollouts are also helping Jaguar and Land Rover sales grow faster than competitors in these regions. 

Tata is trading at a forward price-to-earnings (P/E) ratio of 10.6 based on next year’s earnings estimates. That compares with a forward P/E of 10.5 for Ford and is well below GM’s 19.5 and  11.2 for Honda (NYSE: HMC). Toyota has a lower forward P/E of 9.4 — but factoring in the Street’s earnings growth expectations for the next five years, Tata offers the most compelling growth at a reasonable price (the foundation for so-called GARP stocks). 

Tata’s P/E-to-growth (PEG) ratio is 0.4, well below Ford’s 0.8 and GM and Honda’s 0.9. Tata has a negligible debt load and very strong return on investment of 24%, which stacks up well against the 4% for GM, Ford and Honda. 

Risks to Consider: Tata Motors is heavily dependent on the global economy for its truck and auto sales, so any slowdown would have a significant effect on its top line. The other potential headwind for Tata is that the major automakers could make a larger push into India’s auto industry. 

Action to Take –> If Tata were to trade at the industry average P/E of 12 on expected fiscal 2015 earnings of $4.51 a share, it would be trading at about $55 a share, which represents upside of 40% from current levels. 

Tata currently pays a minuscule 0.3% dividend yield, but did you know that 79% of the world’s highest-yielding stocks are actually overseas? In fact, we’ve found 93 stocks that yield 12% or more, including some of the safest, highest-yielding stocks the world has to offer. To get more information on these stocks, follow this link.