First Trust S-Network Electric & Future Vehicle Ecosystem ETF (NASDAQ: CARZ)

First Trust S-Network Electric & Future Vehicle Ecosystem ETF (NASDAQ:CARZ), Trade Ideas

First Trust S-Network Electric & Future Vehicle Ecosystem ETF

First Trust S-Network Future Vehicles & Technology ETF

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CARZ

Automakers Commit To Spend $250B On Electric Cars In U.S.

Electric vehicle producer Tesla (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/tsla#NASDAQ">TSLA</a>) reports first-quarter results Wednesday after the close, and while those numbers are expected to be weak because of the coronavirus, analysts remain mostly enthusiastic about the company&#39;s long-term prospects.
Wall Street is expecting Tesla to post a loss of $1.22 a share for the first three months of 2020, but some analysts believe that number will be beaten&nbsp;and that with an ensuing rally, Elon Musk&#39;s company could qualify for entry <a href="https://www.cnbc.com/2020/04/28/tesla-is-poised-to-beat-earnings-and-possibly-qualify-for-sp-500-inclusion-barclays-says.html">into the S&amp;P 500</a>.
Assuming that occurs, a rally could be further fueled by index funds, exchange traded funds and active managers that benchmark to that index.
Analysts are forecasting deliveries <a href="https://www.benzinga.com/analyst-ratings/analyst-color/20/04/15883850/tesla-q1-earnings-preview-analysts-convinced-of-long-term-potential-ahead-of-the-pr">of 400,000 this year</a> and that guidance could be weak, comparatively speaking, due to COVID-19. Still, with the recent batch of ratings on Tesla being mostly bullish, it could pay to consider the following ETFs.
ARK Autonomous Technology &amp; Robotics ETF (ARKQ)
One of the kings of the Tesla ETF fray, the ARK Autonomous Technology &amp; Robotics ETF (CBOE: ARKQ) allocates almost 13% of its weight to the stock. That&#39;s been enough to send ARKQ higher by 3.23% year-to-date, which sounds modest, but that showing is downright impressive relative to the Nasdaq-100 Index and the S&amp;P 500.
Few, if any, active management teams are as bullish on or sink with Tesla as ARK.&nbsp;The. team recently addressed total cost of ownership&nbsp;for electric vehicles, which is becoming a relevant point <a href="https://www.benzinga.com/analyst-ratings/analyst-color/20/04/15891645/an-oil-etf-for-the-daring">with oil prices slumping.</a>
&ldquo;According to ARK&rsquo;s research, over a three-year period the Long-Range Tesla Model 3 is already less expensive to own than a Toyota Camry, and the low-end Model 3 less expensive than a Ford Focus,&rdquo; <a href="https://ark-funds.com/arkq">according to ARK</a>.
&ldquo;The TCO is much more sensitive to a vehicle&rsquo;s residual value than to gas prices. In our view, the right question is how low the prices of used gas-powered cars will go as the market transitions first to electric vehicles, and then to autonomous electric vehicles.&rdquo;
First Trust NASDAQ Global Auto Index Fund (CARZ)
Somewhat quietly, the oft-overlooked First Trust NASDAQ Global Auto Index Fund (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/carz#NASDAQ">CARZ</a>) lays claim to having the largest Tesla exposure &mdash; and the competition isn&#39;t all that close. Tesla accounts for 23.53% of the CARZ, an advantage of roughly 400 basis points over the ETF with the second-largest weight to the stock.
CARZ tracks the NASDAQ OMX Global Auto Index. While the Tesla exposure is impressive, it hasn&#39;t been enough to prevent the ETF being burned by lagging&nbsp;traditional automotive holdings, as highlighted by the fund&#39;s 19.16% year-to-date decline.
Global X Lithium &amp; Battery Tech ETF (LIT)
The Global X Lithium &amp; Battery Tech ETF (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/lit#NYSE">LIT</a>) allocates 14.35% of its weight to Tesla, a total surpassed by just three other ETFs, including the aforementioned ARKQ and CARZ. Interestingly, Tesla isn&#39;t LIT&#39;s largest holding. That title is occupied by Albermale (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/alb#NYSE">ALB</a>). Combined, those two stocks command about one-third of LIT&#39;s weight.
By the end of 2021, the lithium market will return to balance as demand growth resumes from increased electric vehicle adoption and other batteries and eats up new supply,&rdquo; <a href="https://www.morningstar.com/articles/979397/look-to-lithiums-bright-long-term-future">writes Morningstar analyst</a> Seth Goldstein.
Photo courtesy of Tesla.&nbsp;

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3 ETFs For Tesla Earnings

Cox Automotive Forecasts March U.S. Auto Sales To Increase From February

Analyst Color

Analyst Ratings

FCAU

RACE

Morgan Stanley Would Avoid The Auto Sector For Now As Firm Sees 'ideal conditions for a high number of profit warnings by auto companies during the Detroit auto show on Jan 15th and 16th'

Economics

US Commerce Secretary Ross Says Section 232 Measures On Cars Will Be Ready When Needed

Rumors

Global

President Trump on Call with Mexico's Nieto Says He Will Call Canadian Prime Minister Shortly, Says the Easiest Action Would be to Put Tariffs on Cars, According to Reuters

Major Auto Trade Group To Tell Trump Admin That A 25% Tariff On Imported Vehicles Would Cost U.S. Consumers $45B In Higher Vehicle Costs, U.S. Buyers Of Imported Vehicles Would Face An Avg. Price Increase Of $5,800

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SenesTech Inc (NASDAQ: <a class="ticker" href="/stock/snes#NASDAQ">SNES</a>) stock was trading higher by more than 10 percent early Tuesday morning after trading higher at one point Monday by nearly 300 percent. The nano-cap developer of pest control said the California state government approved the company&#39;s ContraPest for user in the state.
Kohl&#39;s Corporation (NYSE: <a class="ticker" href="/stock/kss#NYSE">KSS</a>) gained more than 5 percent after the department store reported its <a href="https://www.benzinga.com/pressreleases/18/05/b11754599/kohls-corporation-reports-financial-results">first-quarter results.</a> The company said it earned 64 cents per share in the first quarter on revenue of $4.208 billion versus expectations of 50 cents per share and $3.95 billion. The company also narrowed its 2018 EPS guidance from a range of $4.95-$5.45 to a new range of $5.05-$5.45.
1st Trust NASDAQ Global Auto ETF (NASDAQ: <a class="ticker" href="/stock/carz#NASDAQ">CARZ</a>) could see increased volatility throughout Tuesday&#39;s trading session in reaction to potentially favorable trade relations. China&#39;s government <a href="https://www.bloomberg.com/news/articles/2018-05-22/china-is-said-to-cut-car-import-duty-in-boost-for-lexus-bmw">agreed to lower</a> the tariff rate on American cars and parts from 25 percent to 15 percent.
Precipio Inc (NASDAQ: <a class="ticker" href="/stock/prpo#NASDAQ">PRPO</a>) gained 50 percent early Tuesday morning after the nano-cap specialty diagnostics company said it&nbsp;<a href="https://www.benzinga.com/pressreleases/18/05/g11754876/potential-sequential-revenue-run-rate-growth-of-30-over-q1-based-on-pr">saw an acceleration of sales</a> in its Pathology services in April. The company now expects to see a sequential double digit quarterly sales growth.
Pure Storage Inc (NYSE: <a class="ticker" href="/stock/pstg#NYSE">PSTG</a>) was trading lower by more than 7 percent despite reporting a first-quarter earnings beat and an in-line guidance announcement. William Blair analysts commented in a report the company&#39;s solid print was unfortunately &quot;dwarfed by high expectations.&quot;
<il>Related Links:</il>
<a href="https://www.benzinga.com/news/18/05/11755265/25-stocks-moving-in-tuesdays-pre-market-session">25 Stocks Moving In Tuesday&#39;s Pre-Market Session</a>
<a href="https://www.benzinga.com/news/18/05/11754867/a-peek-into-the-markets-us-stock-futures-up-crude-oil-rises">A Peek Into The Markets: US Stock Futures Up, Crude Oil Rises</a>

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PRPO

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Benzinga Pro's 5 Stocks To Watch Today

After registering the first annual sales decline since the financial crisis last year, the auto industry has been struggling with weak sales this year. This is especially true as car sales dropped 2% year over year to an annualized 17.08 million units in February, after rising 1.2% in January. The weak performance came on the heels of lower discounts.
	Of the six major American and Japanese automakers, Ford Motor F and General Motors GM posted the biggest sales decline of 7% each, followed by declines of 5% for Honda HMC, 4% for Nissan Motor NSANY and 1% for Fiat Chrysler FCAU. Toyota TM&nbsp;saw an increase of 4.5% in its sales last month. General Motors and Fiat Chrysler have a Zacks Rank #2 (Buy), while the other four automakers have a Zacks Rank #3 (Hold).
	The only pure play auto ETF is the First Trust NASDAQ Global Auto ETF CARZ. It offers global exposure to the 34 auto stocks by tracking the NASDAQ OMX Global Auto Index. It is a large-cap centric fund and is highly concentrated on the top five firms &ndash; Honda, Toyota, Daimler, General Motors and Ford &ndash; with a combined 38.6% share while other firms hold no more than 4.38% of assets. In terms of country exposure, Japan takes the top spot at 25.9% while the United States and Germany round off the next two spots with at least 19% share each. CARZ has a lower level of $20.8 million in AUM and trades in a small average daily trading volume of about 5,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank #3 with a High risk outlook, suggesting some room for upside.
	What Lies Ahead?
	The year 2018 seems to be a challenging one for automakers, with many market experts expecting auto sales to fall below $17 million. A strong economy, low unemployment, increasing consumer confidence, higher spending, fuel-efficient and technologically enriched vehicles, and low financing rates and gasoline prices will continue to fuel the industry.
	Strong earnings expectation is an added boost as the sector is expected to return to growth. For the full year, earnings for the sector is expected to growth 0.8% and revenues are expected to rise 2.7% versus a decline of 2.2% and 1.6%, respectively, last year.
	The tax reform will provide a lift to U.S. sales but at the same time also encourage rate hikes, which will make financing of new vehicles expensive. Trump&#39;s intention of imposing heavy tariffs on imported steel and aluminum would be a big blow to the industry as it would increase the cost of auto production. Notably, the auto sector accounted for 26% of demand for steel in the United States in 2017, behind the construction industry, at 40% of demand in 2017, according to data provider Statista.
	Further, the shift in consumers, preference from passenger cars to more profitable pickup trucks and SUVs, as well as longer usage of vehicles will continue to be a drag on sales. The average age of vehicles on the road has climbed to <a href="http://abcnews.go.com/Business/wireStory/us-auto-sales-expected-drop-2017-remain-strong-52112498">11.6 years</a> from 8.8 years in 1998.
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NSANY

Should You Steer Clear Of Auto ETFs And Stocks?

From his campaign days, Trump has indicated that he wants to renegotiate the North American Free Trade Agreement (NAFTA) or totally remove it. The agreement had tied up the U.S., Canada and Mexico for more than two decades. The deal permitted manufacturers and farmers to do seamless business.
Now, this agreement may be threatened as Trump intends to bring jobs offshored to countries like Mexico back to America.
Against these circumstances, we highlight the ETF areas that should be closely watched.
<h3>
	Mexico and Canada</h3>
Analysts from Goldman Sachs noted that &quot;exports to Mexico account for just 1% of U.S. GDP. Similarly, revenues to Mexico and Latin America total just 3% of S&amp;P 500 sales.&quot; While it makes up just a fraction of the U.S. economy, <a href="https://finance.yahoo.com/news/happens-trump-pulls-us-nafta-212235421.html">NAFTA specifically represents</a> substantial portions of Mexico and Canada&#39;s GDP.
&quot;Trade has jumped sharply between the United States and Mexico since NAFTA&#39;s signing, from roughly $290 billion in 1993 to more than $1.1 trillion in 2016. That compares to the $650 billion in bilateral trade the U.S. did with China last year,&quot; as per a note issued by Deutsche Bank analysts.
So, the adverse impact on Canadian and Mexican currency is expected. Guggenheim CurrencyShares Canadian Dollar Trust ETF FXC may be hit hard. U.S. foreign direct investment in Mexico jumped from $15 billion to more than $100 billion from 1993 to 2016. Needless to say, these issues do not go well with country ETFs like&nbsp;iShares MSCI Mexico Capped&nbsp;EWW and&nbsp;iShares MSCI Canada&nbsp;ETF&nbsp;EWC.
<h3>
	Auto</h3>
A huge portion of U.S. trade deficit with Mexico is from the auto sector. Goldman Sachs also indicated that the S&amp;P 500 auto&nbsp;component companies have returned about 52% and electronic equipment firms&nbsp;have offered investors 51% returns compared with 36% provided by the S&amp;P 500 on average. Now, these auto stocks may fall flat if the United States walks out of NAFTA. So, First Trust NASDAQ Global Auto ETF CARZ will be in focus.
<h3>
	Timber</h3>
Already, U.S. President Trump announced plans to slam a tariff of up to 24% on imports from the Canadian softwood lumber industry. The Trump administration indicated that it would levy countervailing duties ranging from&nbsp;<a href="https://www.bloomberg.com/politics/articles/2017-04-24/trump-said-to-plan-20-tariff-on-canadian-softwood-lumber-j1wq4tyg">3% to 24.1%</a>&nbsp;on Canadian lumber producers, as reported by&nbsp;<a href="https://www.bloomberg.com/politics/articles/2017-04-24/trump-said-to-plan-20-tariff-on-canadian-softwood-lumber-j1wq4tyg">Bloomberg</a>.
Along with&nbsp;<a href="http://www.cnbc.com/2017/04/24/trumps-timber-tariff-will-have-a-big-impact-on-lumber-futures-market-housing-stocks.html">several traders</a>, we also believe the action, if it materializes, may lead lumber prices to scale up as lumber imports from Canada will now become costlier. And domestic lumber companies may also be able to charge some price premium in the face of lesser foreign competition. However, Canada has filed a wide-ranging case with the World Trade Organization -- over those and other tariffs that the United States has levied. iShares S&amp;P Global Timber &amp; Forestry Index Fund WOOD thus comes under focus.
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iShares S&P Global Timber & Forestry Index Fund

WOOD

ETFs To Watch If The U.S. Pulls Out Of NAFTA

The ETF industry comprises a flurry of innovative products. One such product is KraneShares Electric Vehicles and Future Mobility ETF KARS. Let&#39;s delve a little deeper:
Inside KARS
KARS looks to track the performance of Solactive Electric Vehicles and Future Mobility Index. The index takes care of global companies that are into the production of electric vehicles and/or their components, or are engaged in other initiatives that may promote the future of mobility.
The index &quot;includes issuers that are into the electric vehicle production, autonomous driving, shared mobility, lithium and/or copper production, lithium-ion/lead acid batteries, hydrogen fuel cell manufacturing and/or <a href="https://kraneshares.com/kars/">electric infrastructure businesses</a>&quot;, as per the issuer.
The index&#39;s constituents include NVIDIA, Baidu, Daimler, Tesla, Samsung SDI, BYD, and Galaxy Resource. No stock accounts for more than 3.88% of the fund with NVIDIA being the top holding. The fund charges 69 bps in fees.
How Does it Fit in a Portfolio?
&nbsp;Electric powered vehicles are gaining immense popularity, thanks to technological development, improving cost economics, government support and increasing acceptance of the powertrain by customers as well as automakers. &nbsp;Per Bloomberg New Energy Finance report issued in 2017, &quot;54% of new car sales and 33% of the global car fleet are projected to be electric by 2040,&quot; as quoted by the issuer.
Countries like China and United Kingdom are focusing on promoting electric cars. China is trying hard to foray into the electric car market as it is working to end sales of fossil-fuel-powered vehicles. Mainland China is currently the world&#39;s largest electric vehicle market, per KraneShares. This is why the index takes into accounts companies that are listed on the Shanghai and Shenzhen Stock Exchanges (A-shares).
KraneShares noted that Chinese companies like Baidu are developing artificial intelligence essential for autonomous &nbsp;driving, and BYD is a world leader in electric vehicles and electric battery manufacturing. KraneShares&#39; CEO went on to say &quot;global companies within the future mobility ecosystem such as Tesla, &nbsp;NVIDIA, and Albemarle Corporation are also capitalizing on strong demand from Chinese and global consumers.&quot;
Competition
The fund should see access ahead as it targets one of the fast-evolving areas of the global investment world. However, there are a few ETFs that can act as peers to this newly-launched product.
Of these, Global X Lithium &amp; Battery Tech ETF LIT comes first.With lithium batteries being used in the electric car making, the fund could pose a threat to KARS (read: <a href="https://www.zacks.com/stock/news/275694/inside-the-surge-in-lithium-etf">Inside The Surge in Lithium ETF</a>).
Then there is the traditional car ETF, First Trust NASDAQ Global Auto Index Fund CARZ. The underlying index of the fund &ndash; the NASDAQ OMX Global Auto Index &ndash; is designed to track the performance of the largest and most liquid companies engaged in manufacturing of automobiles (read: <a href="https://www.zacks.com/stock/news/287843/auto-sales-hit-the-brakes-in-2017-etfs-amp-stocks-in-focus">Auto Sales Hit the Brakes in 2017: ETFs &amp; Stocks in Focus</a>).
The fund charges 70 bps in fees. However, there is a difference between CARZ and KARS. While CARZ mainly focuses on automobile companies, KARS takes care of semiconductor stocks as well as the companies that are related to the future of mobility.
&nbsp;
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BIDU

NVDA

An ETF For Early Exposure To The Electric Car Market

Auto sales have declined between 1 and 2 percent off 2016&rsquo;s all-time highs and market experts expect no recovery.
Although still considering autos a &ldquo;core&rdquo; business line, Morgan Stanley is cautious on U.S. companies and discourages heavy exposure to both manufacturers and suppliers.
<h3>
	The Rating</h3>
Analyst <a href="https://www.tipranks.com/analysts/adam-jonas">Adam Jonas</a> maintained Overweight ratings on Fiat Chrysler Automobiles NV (NYSE: <a class="ticker" href="/stock/fcau#NYSE">FCAU</a>) and Goodyear Tire &amp; Rubber Co (NASDAQ: <a class="ticker" href="/stock/gt#NASDAQ">GT</a>); Equal-weight ratings on General Motors Company (NYSE: <a class="ticker" href="/stock/gm#NYSE">GM</a>) and Tesla Inc (NASDAQ: <a class="ticker" href="/stock/tsla#NASDAQ">TSLA</a>); and Underweight ratings on Ford Motor Company (NYSE: <a class="ticker" href="/stock/f#NYSE">F</a>), Hertz Global Holdings, Inc (NYSE: <a class="ticker" href="/stock/htz#NYSE">HTZ</a>) and Avis Budget Group Inc. (NASDAQ: <a class="ticker" href="/stock/car#NASDAQ">CAR</a>).
<h3>
	The Thesis</h3>
&ldquo;We expect 2018 to feature an unprecedented extension of auto credit as well as unprecedented levels of strategic activity,&rdquo; Jonas said in a Tuesday note. &ldquo;We anticipate returns to be highly idiosyncratic in 2018.&rdquo; (See Jonas&#39; track record <a href="https://www.tipranks.com/analysts/adam-jonas">here</a>.)&nbsp;
Jonas gave six reasons for his take on the sector:&nbsp;&nbsp;
<ul>
<li>
		First, Jonas expects the <a href="https://www.benzinga.com/analyst-ratings/analyst-color/17/03/9198234/meet-the-companies-most-exposed-to-subprime-auto-risk">financing </a>and leasing momentum of 2017 to extend into 2018, buoying the industry to a 5-percent sales decline and, compounded with a potential increase in mix, supporting industry profitability.</li>
<li>
		Second, the accelerated <a href="https://www.benzinga.com/analyst-ratings/analyst-color/17/10/10144613/tesla-delays-gm-ramps-up-whats-the-new-timeline-for-aut">evolution </a>of vehicles places old and new models alike at risk of near-term devaluation and incentivizes consumers to lease rather than buy. The trend may stunt OEM sales and prompt a rise in product price.</li>
<li>
		Third, Jonas expects louder &ldquo;noise&rdquo; surrounding autonomous vehicles in 2018 as OEMs announce competitive strategies and update timelines.</li>
<li>
		Fourth, 2018 could see 2017&rsquo;s theme of spinoffs, buyouts, initial public offerings and general restructurings &ldquo;amplify materially&rdquo; and shake up asset portfolios.</li>
<li>
		&ldquo;We expect carve-outs to potentially have a bigger impact on stock prices than even the auto credit/cycle,&rdquo; Jonas said.&nbsp;</li>
<li>
		Fifth, Jonas anticipates a successful Model 3 ramp inspiring material change in auto investor theses and forming a chasm in the electric vehicle field between Tesla and its competitors.</li>
<li>
		Sixth, the transition toward electric and autonomous systems is seen to incentivize OEMs to return to vertical integration models, which shifts outsourcing business from suppliers and puts those exposed to the old auto industry at risk of obviation.</li>
</ul>
Considering these factors, Jonas named Goodyear his top pick for its exposure to the &ldquo;miles economy&rdquo; and replacement demand. He&rsquo;s &ldquo;warming up&rdquo; to Ford based on the potential for its strategy reveal, while he expects Tesla volatility based on destressing of its balance sheet.
Hertz and Avis are seen as having a 40- and 60-percent downside risk, respectively, amid rising competition from ride sharing services and vehicle cost inflation.
<h3>
	Price Action</h3>
At the time of publication, the auto-specific First Trust Exchange-Traded Fund II (NASDAQ: <a class="ticker" href="/stock/carz#NASDAQ">CARZ</a>) was trading at $42.15.
Related Links: 
	<a href="https://www.benzinga.com/news/17/12/10861597/truck-van-demand-drive-november-auto-sales">Truck, Van Demand Drive November Auto Sales</a> 
	<a href="https://www.benzinga.com/analyst-ratings/analyst-color/17/09/10040623/the-35-year-forecast-for-electric-vehicles">The 35-Year Forecast For Electric Vehicles</a>

Reiteration

Morgan Stanley On Autos: Expect Autonomous 'Noise,' 'Idiosyncratic' Returns

Value stocks are favored in this market rotation and some auto names are riding the trend.
Amid great disparity between growth and value, a UBS analyst expressed a preference for the likes of General Motors Company (NYSE: <a class="ticker" href="/stock/gm#NYSE">GM</a>) and Ford Motor Company (NYSE: <a class="ticker" href="/stock/f#NYSE">F</a>).
<h3>
	The Ratings</h3>
Analyst <a href="https://www.tipranks.com/analysts/colin-langan">Colin Langan</a> reiterated Buy ratings on Adient PLC (NYSE: <a class="ticker" href="/stock/adnt#NYSE">ADNT</a>) ($95 price target), BorgWarner Inc. (NYSE: <a class="ticker" href="/stock/bwa#NYSE">BWA</a>) ($61 price target), Tenneco Inc (NYSE: <a class="ticker" href="/stock/ten#NYSE">TEN</a>) ($70 price target), Ford ($15 price target) and General Motors ($50 price target).
He reiterated Holds and adjusted price targets on:
<ul>
<li>
		Dana Inc (NYSE: <a class="ticker" href="/stock/dan#NYSE">DAN</a>): PT raised from $30 to $33;</li>
<li>
		Delphi Technologies PLC (NYSE: <a class="ticker" href="/stock/dlph#NYSE">DLPH</a>): PT maintained at $58;</li>
<li>
		Aptiv PLC (NYSE: <a class="ticker" href="/stock/aptv#NYSE">APTV</a>): PT maintained at $89;</li>
<li>
		Lear Corporation (NYSE: <a class="ticker" href="/stock/lea#NYSE">LEA</a>): PT raised from $184 to $186;</li>
<li>
		Magna International Inc. (USA) (NYSE: <a class="ticker" href="/stock/mga#NYSE">MGA</a>): PT raised from $52 to $57;</li>
<li>
		Meritor Inc (NYSE: <a class="ticker" href="/stock/mtor#NYSE">MTOR</a>): PT maintained at $26;</li>
<li>
		Visteon Corp (NYSE: <a class="ticker" href="/stock/vc#NYSE">VC</a>): PT raised from $125 to $129.</li>
</ul>
<h3>
	The Thesis</h3>
&ldquo;It&rsquo;s hard to ignore the performance gap between growth and value,&rdquo; Langen said. &ldquo;The secular growers are up 29 percent year-to-date, almost twice the gains of &lsquo;value&rsquo; suppliers (up 14 percent). However, the average five-year CAGR of growth names was only 30 basis points higher than value, with many &lsquo;value&rsquo; suppliers outperforming most growth names.&rdquo; (See Langen&#39;s track record <a href="https://www.tipranks.com/analysts/colin-langan">here</a>.)&nbsp;
Langen anticipates buyback-driven swells in General Motors and improved international sales and fewer recalls for Ford.
A weakening dollar and double-digit increases in heavy truck and off-highway vehicles could boost exposed suppliers Meritor, Dana, BorgWarner, Delphi and Tenneco in 2018, he said. The former three are considered the best positioned on market mix, according to UBS.&nbsp;
Auto players may also catch a tailwind off government activity. Suppliers could benefit from a 2- to 4-percent tax cut as Ford and General Motors enjoy an 11-percent slice, while a breakup of NAFTA could drive cost increases between 0.7 percent and 5.4 percent, Langen said.&nbsp;
<h3>
	Price Action</h3>
At the time of publication, First Trust Exchange-Traded Fund II (NASDAQ: <a class="ticker" href="/stock/carz#NASDAQ">CARZ</a>) tracking car manufacturers was trading up 1.1 percent at $42.02.
Related Link:
<a href="https://www.benzinga.com/news/17/12/10861597/truck-van-demand-drive-november-auto-sales?viewDesktop=1">Truck, Van Demand Drive November Auto Sales</a>
<a href="https://www.benzinga.com/analyst-ratings/analyst-color/17/11/10839782/analyst-sees-possible-big-bang-of-upside-for-general-mo">Analyst Sees Possible &#39;Big Bang&#39; Of Upside For General Motors&nbsp;</a>

Price Target

ADNT

APTV

DLPH

MTOR

Ford, GM Among The Top UBS Value Plays For 2018

CNBC

Retail Sales

CNBC's Phil Lebeau Tweets: Aug. Auto Sales rate was 16.14 million....roughly in line with lowered expectations after Hurricane Harvey.  Per AutoData

Autodata Reports April Light Vehicle Seasonally Adjusted Annual Rate Of 16.88M Units vs 17.1M Units Est.

The First Trust NASDAQ Global Auto Index Fund (NASDAQ: <a class="ticker" href="/stock/carz#NASDAQ">CARZ</a>) is higher by nearly 3.9 percent in 2017 and robust sales are playing a pivotal role in the recent success for the lone exchange traded fund dedicated to the auto industry.
Last week, Jefferies upgraded Ford Motor Company (NYSE: <a class="ticker" href="/stock/f#NYSE">F</a>) saying the automaker&#39;s &ldquo;bad news has been more than dissected in the last six months and sufficiently priced-in.&rdquo; Ford&#39;s above average exposure to light and medium duty work vehicles, most of them sourced in the United States, which bodes well in an environment of infrastructure spending, <a href="https://www.benzinga.com/analyst-ratings/analyst-color/17/02/9025731/fords-bad-news-has-been-sufficiently-priced-in-over-last">Benzinga reported</a>.
General Motors Company (NYSE: <a class="ticker" href="/stock/gm#NYSE">GM</a>) and Ford, the two largest U.S. automakers, combine for about 15 percent of the roster in CARZ.
&ldquo;IHS Markit&rsquo;s sector PMI data show worldwide auto industry production rising at its fastest rate in just over six years in recent months, with production surging again in January amid strong order book growth,&rdquo; <a href="http://www.markit.com/Commentary/Get/10022017-Economics-Global-auto-sector-booms-but-also-struggles-with-higher-costs">said Markit in a recent note</a>. &ldquo;Inflows of new orders into the autos and parts sector rose at the start of the year at the fastest rate since early 2011; a period when post-recession incentives were boosting car sales globally. The recent upturn in sales and production represents a marked contrast to the stagnation and decline seen during the early months of 2016.&rdquo;
While the presence of the &ldquo;Detroit Three&rdquo; looms large in CARZ, the ETF reflects the global nature of the auto business as U.S. firms are just 23.7 percent of the ETF&#39;s weight, below the 33 percent allocated to Japanese automakers.
Japanese and German automakers combine for 52 percent of CARZ, underscoring the point that this ETF is potentially exposed to currency risk. One issue is that CARZ isn&#39;t currency hedged so it lacks that kicker to fully exploit dollar strength. Second, and equally important, is dollar weakness, a scenario which can pinch foreign automakers that count on the U.S. for significant portions of their revenue.
Selling costs are also rising, an issue investors should be aware before considering CARZ or individual auto names,
&ldquo;Selling costs are also rising, but at a much reduced rate compared to input costs. The differential between selling price and input cost inflation has consequently indicated the greatest squeeze on auto company operating margins since early-2011 in recent months,&rdquo; adds Markit.

The Auto ETF Is Driving Smoothly, But Concerns Linger

Failure-related auto part sales in 2017 should be driven by &ldquo;a cold December and normalizing <a href="https://www.benzinga.com/analyst-ratings/analyst-color/16/12/8847367/natural-gas-stocks-pop-as-winter-weather-woes-predicted-">winter weather</a> trends,&rdquo; while an analysis of the 2011&ndash;2012 weather trends suggests &ldquo;better comps ahead,&rdquo; Wedbush&rsquo;s Seth Basham said in a report.
<h3>Weather-Related Sales To Increase Through 2017</h3>
Basham believes the year-over-year <a href="https://www.washingtonpost.com/news/capital-weather-gang/wp/2016/12/29/rare-coast-to-coast-cold-snap-to-engulf-lower-48-late-next-week/?utm_term=.ea9ff32940eb">drop in temperatures</a> in December and forecasts for continued year-over-year declines for the rest of the winter months suggest an accelerated rate of part failure and duress, which should benefit the industry sales for &ldquo;multiple quarters to come.&rdquo;
The weather pattern over the past year and a half is similar to the trends witnessed in the 2011&ndash;2012 period, &ldquo;when mild winter weather weighed on industry comps until normal winter weather returned in 2012&ndash;2013 and comps rebounded sharply,&rdquo; Basham elaborated.
The analyst expects <a href="http://www.benzinga.com/analyst-ratings/analyst-color/16/12/8795847/ebay-and-amazon-dominate-the-diy-auto-retail-market">DIY auto stocks</a> to outperform &ldquo;in anticipation of improved trends,&rdquo; while naming the top DIY auto picks as Advance Auto Parts, Inc. (NYSE: <a class="ticker" href="/stock/aap#NYSE">AAP</a>) (Rated: Outperform), O&#39;Reilly Automotive Inc (NASDAQ: <a class="ticker" href="/stock/orly#NASDAQ">ORLY</a>) (Rated: Outperform), AutoZone, Inc. (NYSE: <a class="ticker" href="/stock/azo#NYSE">AZO</a>) (Rated: Outperform) and Genuine Parts Company (NYSE: <a class="ticker" href="/stock/gpc#NYSE">GPC</a>) (Rated: Neutral). Basham noted further that these were the most &ldquo;weather-sensitive&rdquo; stocks.
The underlying industry trends continue to be favorable, &ldquo;highlighted by continued increases in miles driven,&rdquo; the Wedbush report added.

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Cold Weather Implications For Auto Sales

The auto industry could be in trouble, as <a href="http://www.cnbc.com/2016/08/26/subprime-auto-loans-begin-to-slide.html">CNBC reported</a> delinquencies in subprime auto loans are on the rise.
CNBC, citing data from Fitch Ratings, stated that delinquencies of at least 60 days for subprime auto loans have risen by 13 percent month-over-month in July and are higher by 17 percent compared to the same month a year ago.
Subprime asset-backed securities' annualized net losses have also risen, and this could "spook" auto loan buyers. As if the report wasn't troubling enough, Fitch's data also showed prime auto loans were 21 percent more delinquent in July compared to last year.
CNBC noted that the total amount of auto loans now exceeds $1 trillion, as borrowers took advantage of more attractive terms, including longer time to repay the loans.
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/analyst-ratings/analyst-color/16/08/8395052/halfway-through-q3-loop-capital-and-deutsche-bank-review">Halfway Through Q3, Loop Capital And Deutsche Bank Review Railroad Names</a></bzrelatedlink>
"Increased losses are emanating from weaker collateral pools in the 2013-2015 transactions, which have weaker credit quality including lower FICO scores, higher amounts of extended term loans (over 60 months) and higher LTVs [loan to value ratios]," CNBC quoted Fitch Ratings analysts as saying in a report.
However, there are some pieces of data that support the auto industry. Specifically, CNBC stated that used vehicle values are "defying expectations" and are "remaining healthy" so far this year. In addition, the low unemployment rate is also a "a key signal for the borrowing economy."
First Trust Exchange-Traded Fund II (NASDAQ: <a class="ticker" href="/stock/carz#NASDAQ">CARZ</a>), an auto-sector-tracking ETF, is down over 8 percent year-to-date, but flat over the last month.
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Bad News For The Auto Sector? CNBC Reports Delinquencies In Subprime Loans On The Rise

The First Trust NASDAQ Global Auto Index Fund (First Trust Exchange -Traded Fund II (NASDAQ: <a class="ticker" href="/stock/carz#NASDAQ">CARZ</a>)), the lone exchange-traded fund dedicated to automotive manufacturers and related companies, needs to see a mechanic.
CARZ is down nearly 11 percent year-to-date, while the largest consumer discretionary ETF is higher by 3 percent.
<h3>Is CARZ Zooming Or Stalling?</h3>
The auto ETF has been confounded by currency issues, among other headwinds. For example, Japan is the ETF&#39;s largest country weight at 35.5 percent and four of the fund&#39;s top 10 holdings are Japanese firms, including Toyota Motor Corp (ADR) (NYSE: <a class="ticker" href="/stock/tm#NYSE">TM</a>) and Honda Motor Co Ltd (ADR) (NYSE: <a class="ticker" href="/stock/hmc#NYSE">HMC</a>).
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/analyst-ratings/analyst-color/16/08/8292670/all-that-glitters-aint-buy-rated-citi-goes-neutral-on-go">All That Glitters Ain't Buy Rated: Citi Goes Neutral On Gold</a></bzrelatedlink>
In other words, although CARZ is not a currency hedged ETF in the traditional sense, it is a de facto currency hedged ETF with its 35.5 percent weight to Japan. And with the yen being driven higher for much of this year on safe-haven demand, CARZ has suffered.
Now CARZ has to contend with slumping auto sales. Sales at General Motors Company (NYSE: <a class="ticker" href="/stock/gm#NYSE">GM</a>), Ford Motor Company (NYSE: <a class="ticker" href="/stock/f#NYSE">F</a>) and Toyota dipped last month, according to the <a href="http://www.wsj.com/articles/ford-and-gm-sales-slipped-in-july-1470145541">Wall Street Journal</a>. Those three of the five largest holdings in CARZ combine for almost 24 percent of the ETF&#39;s weight.
<h3>Looking Down The Track</h3>
Perhaps July will prove to be a minor bump in the road for CARZ. After all, the automotive industry has been a key driver for the U.S. economy in the years since the financial crisis, and some industry observers are still predicting record sales for 2016.
TrueCar Inc (NASDAQ: <a class="ticker" href="/stock/true#NASDAQ">TRUE</a>) estimated the average transaction price (ATP) to have increased 1.3 percent to $32,518 for a new light vehicle in July. However, average incentive spending per unit also advanced by $159 to $3,225 in July. The research firm pointed out that the ratio of incentive spending to ATP rose to 9.9 percent from 9.6 percent a year ago, <a href="http://www.benzinga.com/news/earnings/16/08/8292570/most-automakers-report-u-s-sales-decline-during-july">Benzinga reported Tuesday</a>.
Along with a weak yen, CARZ would also benefit if the euro were to slide against the dollar as Germany and France, the eurozone&#39;s two largest economies, combine for over a quarter of the ETF&#39;s weight.
However, investor reaction to various monetary stimulus efforts this year by the Bank of Japan and European Central Bank has been less than enthusiastic, indicating investors are concerned that central banks are running out of tools with which to depress their currencies.
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Engine Troubles For The Auto ETF

So far this earnings season, the market has not been impressed by relatively strong earnings from the auto industry, and neither has Goldman Sachs. There have been 16 consensus beats in the auto space so far compared to only four misses, but auto stocks have only gained an average of 0.3 percent on reporting day.
Goldman analyst Patrick Archambault sees several reasons for the tepid market reaction.
&ldquo;We believe this was due to more conservative management tones that outlined a number of risk factors surrounding global production amid a plateauing US backdrop, a level of uncertainty in China following the stimulus tax break, and continued weakness in South America,&rdquo; Archambault explained.
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He mentions a few names specifically that Goldman is avoiding for now: Neutral-rated Meritor Inc (NYSE: <a class="ticker" href="/stock/mtor#NYSE">MTOR</a>), Magna International Inc. (USA) (NYSE: <a class="ticker" href="/stock/mga#NYSE">MGA</a>) and Metaldyne Performance Group Inc (NYSE: <a class="ticker" href="/stock/mpg#NYSE">MPG</a>), as well as Sell-rated Titan International Inc (NYSE: <a class="ticker" href="/stock/twi#NYSE">TWI</a>).
Instead, Goldman believes that investors should be focusing on companies with secular growth opportunities. Archambault names Delphi Automotive PLC (NYSE: <a class="ticker" href="/stock/dlph#NYSE">DLPH</a>), BorgWarner Inc. (NYSE: <a class="ticker" href="/stock/bwa#NYSE">BWA</a>) and Harman International Industries Inc./DE/ (NYSE: <a class="ticker" href="/stock/har#NYSE">HAR</a>) as his top three stock picks.
Despite record auto sales, the First Trust Exchange-Traded Fund II (NASDAQ: <a class="ticker" href="/stock/carz#NASDAQ">CARZ</a>) is down 10.8 percent in 2016.
Disclosure: The author holds no position in the stocks mentioned.

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