U.S. auto sales remained on the growth trajectory in Jun 2014,
despite the anticipation of a decline. The increased sales in the
month contributed to a 4% year-over-year uptick in U.S. light
vehicle sales in the first half of 2014.
Sales on a seasonally adjusted annualized rate (SAAR) basis also
rose to 17 million in Jun 2014 from the year-ago level of 15.9
million units. This is the first time that SAAR reached 17 million
after Jul 2006. Moreover, SAAR has remained above the 16 million
mark in the last 4 months.
Both retail and fleet sales remained strong in the last four
months, thus offsetting the weak auto sales in the first two months
of 2014. Light truck sales were particularly strong and outpaced
the car sales.
High incentives by automakers, low interest rates, the rising
employment rate, increasing consumer confidence and recovery of the
housing market were some of the factors that drove sales.
Incentives in the form of discounts led to a 2.2% sequential
decline in the average transaction price for light vehicles to
$30,575 in June, per TrueCar.
Apart from these factors, the high average age of cars on the
U.S. roads is resulting in replacement demand. Moreover, with the
improvement in the general economic situation, banks are offering
more car loans with lower interest rates and longer repayment
periods. This is an important reason behind the increase in auto
The most obvious beneficiaries of increasing automobile sales
are major auto manufacturers and auto retailers. Additionally,
manufacturers and suppliers of car parts are gaining from the
rising sales as well.
The benefits also trickle down to the suppliers of the basic
materials for these cars, such as steel, rubber, paint and so on.
Moreover, with the growing demand for in-car connectivity, the
Internet service providers for the major automakers also stand to
gain. Further, high auto sales increase the demand for fuel, thus
proving to be profitable for oil and gas companies.
3 Auto Stocks to Buy Now
Considering the robust sales figures and future expectations, it
would be a good idea to invest in some stocks in the automobile
sector. Here are three auto stocks that are expected to perform
well, each of which also has a favorable Zacks Rank:
Headquartered in Scotts Valley, CA,
Fox Factory Holding Corp
) designs and manufactures suspension products for mountain bikes,
side-by-side vehicles, on-road vehicles with off-road capabilities,
off-road vehicles, trucks, all-terrain vehicles, snowmobiles,
specialty vehicles and applications, and motorcycles.
This Zacks Rank #1 (Strong Buy) stock offers a strong return on
equity (ROE) of 36.7%. Moreover, its long-term growth rate is
projected to be about 20%. Fox Factory has a forward
price-to-earnings (P/E) ratio of 19.6x and price-to-book (P/B)
ratio of 6.6x.
Cooper Tire & Rubber Co.
) manufactures and markets tires and related products. This Zacks
Rank #1 stock is the 11
largest tire company globally on the basis of sales and the 4
largest tire manufacturer in North America.
Cooper Tire is currently trading at a forward P/E ratio of 11.2x
and P/B ratio of 1.8x. Its ROE is 9.4%.
Magna International Inc.
), based in Aurora, Canada, is a leading manufacturer and supplier
of automotive components. The company designs, develops and
manufactures automotive systems, assemblies, modules and
components, besides engineering and assembling complete vehicles,
primarily for sale to original equipment manufacturers of cars and
Magna International currently carries a Zacks Rank #2 (Buy). The
company has a P/E ratio of 13.1x and P/B ratio of 2.5x. Moreover,
it offers a good ROE of 17.6%. Its long-term growth rate is
expected to be 11.63%.
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