U.S auto sales beat expectations in March, fueled by higher demand for SUVs and pickup trucks. Stepped up showroom traffic, big consumer discounts and product launches drove demand for vehicles. Automakers are also benefitting from a strong job market and decade-high consumer confidence levels, while business owners are taking advantage of tax cuts to upgrade their fleet. These positives outweighed higher gasoline prices and rise in borrowing costs.
Banking on the positives, it seems prudent to invest in certain top-ranked auto stocks. Before we cherry-pick them, let's look into a few other details.
SUV & Pickup Truck Demand Builds Up
As per Autodata, U.S. auto sales climbed 6.3% in March on rising sales of SUVs and pickup trucks. The rise easily outpaced analysts' estimates - the 3% forecasted by Edmunds.com and 2% by Cox Automotive. SUVs and pickup truck sales jumped 16.3% as buyers came out of hibernation following a harsh winter. Almost two-third of all the vehicles sold was SUVs and pickup trucks.
The March sales rate is quite encouraging. After all, analysts widely expected a decline in auto sales this year due to higher interest rates and an uptick in monthly car payments. Lest we forget, millions of vehicles will be returned after coming off lease this year. Last year wasn't promising either, with auto sales falling 2% after touching a record high of 17.55 million units in 2016.
How Have Automakers Fared in Dealer Showrooms?
General Motors Company's GM sales rose 16% year over year and 34% sequentially, breezing past expectations. The gains were mostly driven by Buick, Chevrolet, Cadillac and GMC brands. Its retail sales rose 14% annually, helping the company gain an estimated retail market share of 17.7%.
Ford Motor Company's F annual sales in March increased 3.4%, with fleet rising 8.7% and retail 0.8%. Sales of SUVs climbed 7.5% and truck popped 6.7%. Ford said in a statement that it "saw incredible demand for their trucks and SUVs, selling over 87,000 F-Series pick-ups. Ford brand SUVs established a new sales record in March." But, the most impressive thing has been the year-over-year rise in average transaction price to $1,400, indicating consumers' willingness to shell out more for its premium segments.
Fiat Chrysler Automobiles N.V.'s FCAU annual sales last month rose 14%, the best in 12 years. Meanwhile, retail sales rose 11% year over year, the highest in 17 years. The company's SUV brand remained red hot. Brands such as Wrangler, Cherokee and Compass registered huge gains as well.
Among other automakers, Toyota Motor Corporation TM sales were up 3.5%, Honda Motor Co. 3.8% and Volkswagen 13.5% on a year-over-year basis, while sales of Hundai took a beating. Overall, it was a good month for automakers with March's seasonally adjusted annual sales rate coming in at 17.48 million vehicles, compared with 16.8 million in March 2017, per AutoData.
What Backed the Sales Rise?
The U.S. economy is in the pink of health, soaring to the highest point since President George W. Bush had taken office, according to Pew Research Center. Unemployment rate has been a cause of concern for Americans for the past two years. But now, the jobless rate is also near a 17-year low. American households, in the meantime, have been increasingly optimistic about the state of the economy. The Consumer confidence index stayed near an 18-year high.
With consumers confidence holding up well, spending on big ticket items like vehicles picked up pace. At the same time, the latest corporate tax cuts helped business houses use that extra cash to renovate vehicles and eventually gain customers.
5 Solid Buys
We present five auto stocks set to benefit from the aforesaid trends. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
General Motors Company designs, builds, and sells cars, trucks, crossovers, and automobile parts. The stock has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 4.5% in the last 60 days. General Motors has outperformed the broader industry in the last one-year period (+7.8% vs -3.0%).
Fox Factory Holding Corp. FOXF is a manufacturer of suspension products used primarily on off-road vehicles, on-road vehicles and all-terrain vehicles. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 2.3% in the last 60 days. Fox Factory has outperformed the broader industry in the past year (+21.4% vs -3.0%).
Spartan Motors, Inc. SPAR engineers, manufactures, and sells heavy-duty and purpose-built specialty vehicles. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 12.9% in the last 60 days. Spartan Motors has outperformed the broader industry in the past year (+111.6% vs +25%). You can see the complete list of today's Zacks #1 Rank stocks here .
Meritor, Inc. MTOR supplies drivetrain, mobility, braking and aftermarket solutions for commercial vehicle. It operates in three segments: Commercial Truck, Industrial, and Aftermarket & Trailer. The stock has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 1.5% in the last 60 days. Meritor, which is part of the Automotive - Original Equipment industry, has given a solid return of 23.3% in the past year.
Fiat Chrysler Automobiles N.V. designs, engineers, manufacture, distribute, and sell vehicles, components, and production systems. The stock has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings moved up 8.3% in the last 60 days. Fiat Chrysler has outperformed the broader industry in the last one-year period (+115.5% vs +17.3%).
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Ford Motor Company (F): Free Stock Analysis Report General Motors Company (GM): Free Stock Analysis Report Fox Factory Holding Corp. (FOXF): Free Stock Analysis Report Toyota Motor Corporation (TM): Free Stock Analysis Report Fiat Chrysler Automobiles N.V. (FCAU): Free Stock Analysis Report Meritor, Inc. (MTOR): Free Stock Analysis Report Spartan Motors, Inc. (SPAR): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research