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Automotive companies aren’t usually what investors think of when debating their next stock purchase, but the industry has changed rapidly over the last few years. Gig economy firms like Uber and Lyft have completely disrupted the taxi industry. Expansions into hybrid cars and autonomous vehicles dominate the news landscape, yet trucks and SUVs are the sales giants in America. Does the automotive industry deserve another look from a fresh perspective? A few companies are making that very argument.
Highlighted Auto Manufacturer Stocks:
- Advance Auto Parts (NYSE: AAP)
- Fiat Chrysler (NYSE: FCAU)
- General Motors (NYSE: GM)
- Winnebago Industries (NYSE: WGO)
- Toyota Motors (NYSE: TM)
Overview: Auto Stocks
The car industry began in 1886 when Karl Benz first patented his newest invention, the Benz Motorwagen. By 1899, Benz had the top car manufacturer in the world. Mass production didn’t come until late in the first decade of the 1900s, when the Ford Motor Company developed a moving assembly line that drastically increased the production of cars and Americans began plucking them off the lot before the paint could dry.
Today, the largest car manufacturers are Toyota, Volkswagen, Hyundai, General Motors and Ford. Toyota and Volkswagen both produced over 10 million cars in 2017, with world car production topping 97 million vehicles. Since 1997, car production has declined in only 4 years: 1998, 2001, 2008 and 2009. The automobile industry faced a crisis in 2009 when production declined by more than 12% and the federal government was forced to bail out manufacturers General Motors and Chrysler.
Auto stocks don’t only refer to car makers. Aftermarket and DIY auto parts stores like AutoZone and O’Reilly Auto Parts have been very profitable, as have some online car and truck dealership stocks like CarMax and TrueCar. Even companies like Google research autonomous vehicles that could challenge electric car makers like Tesla and Toyota.
When investors talk auto stock, it’s no longer just a conversation about the Big Three in Detroit. It’s a diverse sector and opportunities abound.
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Features to Look for in an Auto Industry Stock
Auto industry companies have high costs, both from a capital and labor perspective. Cars are expensive to produce and workers have successfully bargained for more rights and pay over the years. The high cost of labor means thin margins, so car manufacturers with weak sales numbers won’t have profitable stocks. Here are a few important factors to identify before purchasing any auto stocks.
- Year-Over-Year Sales Growth. Companies across all industries use year-over-year growth statistics in order to paint a clearer picture of their business health. By focusing on longer timeframes, company owners can remove the volatility caused by factors like seasonal sales. Year-over-year sales growth is especially important for automotive companies since consumers purchase a majority of their vehicles during the holidays or summer sales season. Instead of comparing August sales to September sales, you compare August 2017 sales to August 2018 sales. Look for car companies that increase sales over the long term.
- Forward Price-to-Earnings Growth. Price-to-earnings growth is usually shortened to PEG ratio and it’s a supercharged version of the old school P/E ratio. Instead of just dividing stock price by earnings per share, the PEG ratio factors in expected earnings. Take the P/E ratio and divide by the expected 5-year earnings growth rate. A PEG ratio under 1 is considered undervalued, so consider buying stocks where the earnings growth rate is higher than the P/E ratio.
- Availability of New Models. New, flashy cars aren’t just the most profitable vehicles — they’re also the apple of the American motorist’s eye. Producing new models every year keep customers coming back for the latest and greatest advancements, plus manufacturers can charge much more for new cars than outdated ones. Be wary if a car company isn’t developing new models.
Auto Stocks to Watch Out for This Year
The automotive industry is headed for another shakeup when autonomous vehicles begin taking the road in the next handful of years. The following companies are best poised to not only survive shocks but thrive. Making and servicing cars is a tough business, as Elon Musk at Tesla is beginning to realize. You need more than just brilliant ideas, you need a business plan to sell cars. With that and the above criteria in mind, here are 5 auto stocks to watch in 2019.
Advance Auto Parts (AAP)
The first stock on our list doesn’t even make cars! But auto parts stocks have been some of the hottest in the sector and Advance Auto Parts is the top choice for the DIY car enthusiast. Advance Auto Parts, known by its checkered-flag logo, is also a money-making machine. The company has surpassed earnings estimates in each of the last 4 quarters and has increased annual net assets in each of the last 4 years.
Its PEG ratio of 1.09 is a little high for this list, but still reasonable compared to peers like AutoZone and O’Reilly. If you want an auto parts retailer in your portfolio, Advance Auto Parts makes the most compelling case.
Fiat Chrysler (FCAU)
Chrysler emerged from its bailout and merged with Fiat to create a global car manufacturer to rival the world’s automotive largest companies. Fiat Chrysler made 4.6 million vehicles in 2017 and sells cars under the Dodge, Alfa Romeo, Jeep, RAM and Maserati brands.
The RAM Pickup was the third highest-selling vehicle in the United States in 2018 and the Jeep Wrangler and Grand Cherokee continue to increase in popularity. FCAU has a tiny 0.21 PEG ratio, which points to a very undervalued stock. The American love affair with trucks and SUVs shows few signs of slowing, so Fiat Chrysler should continue to see its vehicles at the top of the sales charts.
General Motors (GM)
GM is one of the oldest car manufacturers in the United States. It’s also the largest American car maker, producing vehicles under the Buick, Cadillac, Chevrolet and GMC umbrellas. GM had a number of vehicles on the top selling list for 2018, including the Chevy Silverado (second), Chevy Equinox (8th) and GMC Sierra (18th). The company is a leader in autonomous vehicle research and recently invested in ride-sharing starlet Lyft.
Despite solid profits, forward-thinking management and a 4.36% dividend yield, the company’s stock remains undervalued. GM’s 0.36 PEG ratio is one of the best on our list and their vehicles continue to sell, making them worthy of consideration in your portfolio.
Check out Benzinga's guide to General Motors stock
Winnebago Industries (WGO)
Yes, those goofy motor homes are expensive, but Winnebago Industries has increased revenue for 4 consecutive years. In fact, it’s doubled since 2016. Winnebago has more than 25 different models of recreational vehicles, ranging in price from around $10,000 to over $300,000.
Its 0.66 PEG ratio means the stock appears undervalued, especially after 4 consecutive earnings beats. Don’t underestimate the popularity of campers.
Toyota Motors (TM)
Toyota sells more cars than any company in the world and the Corolla’s all-time sales record will likely never be broken. Last year, Toyota placed 5 cars on the top sales list, including the Toyota RAV4 (fourth), Camry (seventh), Corolla (10th), Tacoma (14th) and Highlander (15th).
Toyota’s revenue has increased for 3 consecutive years but only sports a 7.31 P/E ratio. Forward earnings growth statistics aren’t available from the Japanese car maker; however, they still deserve consideration in all kinds of portfolios.
Find a Place for Auto Stocks in Your Portfolio
The automotive industry is changing and only the best companies will remain profitable during the many upcoming transitions.
The 5 stocks we’ve listed here have strong current numbers and could have unique future opportunities to seize more market share. We wouldn’t recommend auto stocks as the foundation of a portfolio, but a few names sprinkled in will diversify you across the consumer cyclical sector.
Biggest Auto Stock Movers of the Day
The biggest moving Auto Manufacturer Industry stocks are below. Find the opening and closing prices, trade volume, and percent changes in price. Find more the of the best Consumer Cyclical Sector stocks of the day below:
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