Riding past the impact of the severe winter on sales, automobile
companies have started reaping benefits from the spring selling
season. U.S. light-vehicle sales surged 11% year over year to 1.61
million in May 2014. Year-to-date sales also increased 5% to 6.75
million, despite weak sales in January and February.
Though the inclement weather led to a disappointing couple of
months in the beginning of the year, auto sales rebounded strongly
thereafter, with the seasonally adjusted annualized rate (SAAR)
staying above the 16 million mark in each of the three consecutive
months. In fact, the SAAR hit 16.8 million in May, which is the
highest since Jul 2006.
All major automakers reported strong sales figures, led by
General Motors Company
), which had the highest sales of 284,694 vehicles, up 13% from May
Toyota Motor Corp.
Nissan Motor Co.
) and Chrysler also reported double-digit sales growth.
Consumers remained unfazed by the unending stream of recalls by
General Motors, leading to the company's best May sales in seven
Ford Motor Co.
) reported its best May retail sales in 10 years, while Toyota had
its best monthly sales in 6 years. Chrysler Group - controlled by
) - also reported its highest May sales since 2007.
Major Growth Drivers
The automobile industry is cyclical in nature and depends
significantly on macroeconomic factors. The current growth in auto
sales is buoyed by low interest rates, rising employment rates,
growing consumer confidence and recovery of the housing market.
Moreover, with the improvement in the general economic situation,
banks are offering more car loans with lower interest rates and
longer repayment periods. Further, the high average age of cars on
the U.S. roads is resulting in high replacement demand for cars as
well as car parts.
Moreover, automakers continue to offer ample incentives to
attract customers. Five weekends in May and an early Memorial Day
acted as the icing on the cake.
3 Auto Stocks to Buy Now
Considering the robust sales figures, it would be a good idea to
invest in some auto stocks that are expected to perform well. Here
are three auto stocks that have strong fundamentals and favorable
Cooper Tire & Rubber Co.
) manufactures and markets tires and related products. This Zacks
Rank #1 (Strong Buy) stock is the 11th largest tire company
globally on the basis of sales as well as the 4th largest tire
manufacturer in North America.
Cooper Tire is currently trading at a forward price-to-earnings
(P/E) ratio of 10.6x, which is significantly lower than the
industry average of 16.6x. It has a price-to-book (P/B) ratio of
1.7x, which is also at a considerable discount to the industry
average of 3.1x. Its return on equity (ROE) is 9.4%.
Long Island City, NY-based
Standard Motor Products Inc.
) is one of the leading manufacturers, distributors and marketers
of automotive replacement parts in the U.S. The company primarily
focuses on engine management and temperature control products.
This Zacks Rank #2 (Buy) stock has a P/E ratio of 15.4x, which
offers a small discount on the industry average. Its P/B ratio of
2.7x is also marginally lower than the industry average. Its ROE of
16.4% surpasses the industry average of 14.4%. Moreover, its
long-term growth rate is projected to be about 10.6%.
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. The
company has a P/E ratio of 12.6x, significantly below the industry
average. Its P/B ratio of 2.4x is also lower than the industry
average. Moreover, the 17.6% ROE is significantly higher than the
industry average. Its long-term growth rate is expected to be
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FORD MOTOR CO (F): Free Stock Analysis Report
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COOPER TIRE (CTB): Free Stock Analysis Report
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GENERAL MOTORS (GM): Free Stock Analysis Report
STANDARD MOTOR (SMP): Free Stock Analysis
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