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Outlook On Autos Is Bullish; Most Bases First Stage

By: Investor's Business Daily
Posted: 1/15/2013 5:06:00 PM
Referenced Stocks: F;HMC;TM;TTM;VLKAY

The Street leans toward the bullish view on auto sales for 2013.

Here are some of the factors that support the upbeat scenario:

• Global auto sales averaged 7% gains over the past three years, according to ScotiaBank. The bank sees a still decent 4% pop this year.

• The average age of U.S. vehicles is 11 years, and replacement pressure will only grow stronger.

• Non-U.S. markets show big growth prospects. China accounted for 60% of the increase in global vehicle volume over the past decade. China expects auto sales growth to step up from last year's 4.3% rate to 7%. The market penetration rate in China is a tenth of G-7 nations; there's room to grow.

• Europe vehicle sales slid to a 19-year low last year, but analysts see signs of stability.

Successful investors make sure they're on the right side of a trend. And IBD's industry group ratings put carmakers at No. 16 among 197 groups, as of Tuesday's IBD.

Let's look at some auto stocks.

Volkswagen ( VLKAY ) has seven joint venture plants in China and is adding three. The German company sold 2.8 million vehicles in China last year, according to Zacks. The stock, though, is extended from a first-stage base. Volkswagen's EPS Rating is 90 on a scale of 1 (bottom 1%) to 99 (top 1%). The annualized dividend yield is 2.4%.

Ford Motor ( F ) sold 626,616 vehicles in China in 2012, up 21% from 2011. December sales in China surged 43%. The stock is extended from a first-stage base. The EPS Rating, though, is a lackluster 28. The yield is 2.8%.

Tata Motors ( TTM ) is based in India but only about a third of revenue is tied to India. The EPS Rating is 88. The yield is 1.1%. The stock is extended from a first-stage base.

Japan's carmakers are running into resistance in China because of the two countries' dispute over islands in the East China Sea.

Toyota Motor ( TM ) has an EPS Rating of 81. The yield is 1.4%. The stock is extended from a first-stage base.

Honda ( HMC ) has an EPS Rating of 85. The yield is 2%. The stock has shaped a first-stage base with a potential buy point at 39.45.

While Honda is the only stock not extended, the other stocks could form second-stage bases.