3 Auto Stocks Riding High - Analyst Blog

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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.

Main Contributors

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 sales.

Beneficiaries

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 ( FOXF ) 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.

Ohio-based Cooper Tire & Rubber Co. ( CTB ) manufactures and markets tires and related products. This Zacks Rank #1 stock is the 11 th largest tire company globally on the basis of sales and the 4 th 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. ( MGA ), 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 light trucks.

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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FOX FACTORY HLD (FOXF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Stocks

Referenced Stocks: CTB , MGA , FOXF

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