The U.S. auto industry has taken a pounding in recent months. But as the country reopens, car sales could rebound in a big way – and these auto stocks have already gotten a head start.
According to conventional wisdom, the U.S. auto industry is in dire straits after the recent COVID-19-related economic collapse. But don’t count the car out yet, for as we’ll see here, the industry has some important tailwinds that should keep it on a positive path in the intermediate term – making certain auto stocks appealing at current prices.
While auto sales did suffer a pronounced downturn during the recent economic shutdown, an increasing number of industry experts see vehicle sales rebounding in the months ahead as the economy gets back on track. Not only sales, but production of both commercial and personal vehicles is also expected to ramp up in the wake of the shutdown.
Indeed, some analysts see auto sales getting a significant boost in the coming months and years as consumers avoid mass transit due to public health concerns. After all, it makes sense that cars will be in greater demand as more Americans flee big cities for areas with lower population densities in order to avoid health risks. Other vehicle categories (including motor homes) are also expected to benefit from this new economic paradigm.
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With this in mind, let’s take a look at some of the leading auto companies for ideas as to which stocks stand to benefit the most from an anticipated nationwide vehicle sales rebound. What follows are five auto stocks that are already showing strong relative performance versus the industry average.
5 Auto Stocks that are Outperforming
Auto Stock #1: Honda Motor (HMC)
Honda Motor (HMC) shares took a hit during the pandemic as auto sales temporarily collapsed. The stock fell nearly 30% from its January high before bottoming in March. Since then, it has commenced a slow-but-steady turnaround, most recently hitting the 27 level and getting very close to its pre-COVID level. Honda’s latest upside breakout was on high volume, suggesting strong institutional demand, after the company resumed production at its factories in the U.S. and Canada last month.
Honda suspended earnings guidance for the rest of the year and didn’t offer an outlook for 2021 due to the uncertainty surrounding the global pandemic. However, analysts predict an earnings and revenue turnaround for the company starting in early 2021 as economies around the world presumably get fully back on track and pent-up auto demand begins to assert itself. Honda’s passenger cars and motorcycles are in high demand, so there’s every reason to expect a return to profitability for the company.
Auto Stock #2: Tesla (TSLA)
Tesla (TSLA) still commands most of Wall Street’s attention among major auto manufacturers, and for good reason—the electric car maker is on the cutting edge of an exciting technology and potentially huge growth industry (which we frequently cover in Cabot Top Ten Trader).
Tesla made headlines when it recently announced it would slash prices on three of its most popular models in an apparent move to increase demand as the economy reopens. Another development for Tesla investors is the rumored impending announcement of major battery improvements for the Model 3, which could not only give drivers more range and improve manufacturing costs, but would also presumably increase the firm’s total addressable market.
On the financial front, Tesla’s latest quarter was a strong one, which saw the firm achieve a profit for the third consecutive quarter, easily beating consensus expectations. Analysts also envision strong profits for the remainder of 2020 and north of $12 per share in 2021. Tesla is a solid growth story and a good stock to own for the long term.
Auto Stock #3: Aptiv (APTV)
It’s not just car makers that stand to benefit from a revived economy, but also companies that provide products and services for the industry. Aptiv (APTV) is an auto parts supplier with a stake in the potential growth industry of the future: autonomous vehicles. Aptiv’s latest quarterly earnings surprised on the upside and gave investors a needed confidence boost that the firm is on the right track going forward. As the electrification of cars progresses, Aptiv has a compelling long-term growth story to tell.
Auto Stock #4: Thor Industries (THO)
The COVID pandemic is also expected to lead to a resurgence of interest in recreational vehicles (RVs) for people who want to avoid hotels and air travel. Already there have been several reports from around the nation attesting to an RV sales boom as customers anticipate what some are calling a “socially distant” summer. RV rental provider RVShare has reported record bookings since early April, also citing a survey that showed 93% of respondents plan to avoid crowds this summer.
Thor Industries (THO) manufactures and sells towable and motorized RVs through several subsidiaries, including Airstream and Heartland RV, and is one of the industry’s top leaders. Recently, Thor announced it has resumed operations in North America and Europe with plans to increase production as dealer inventory levels continue to fall. In a sign of confidence for its future, the firm also said it plans on repaying a $250 million loan borrowed at the outset of the COVID pandemic.
Technically speaking, Thor’s stock recently made a new 52-week high in a relatively narrow field of NYSE new highs; it’s also above its rising 25-day and 50-day moving averages. Moreover, it has seen more upside than downside volume days in recent weeks, all of which suggests strong institutional demand. Thor Industries is a great auto stock, and the perfect alternative summer stock.
Auto Stock #5: Sonic Automotive (SAH)
Auto retailers also stand to benefit from the reopening of the U.S. economy. Sonic Automotive (SAH) is the fifth-largest automotive retailer in the nation, with operations in 14 states and over a hundred dealerships representing numerous foreign and domestic auto brands, both new and used.
While Sonic was hit by shutdowns along with the rest of the industry, analysts predict an earnings and revenue rebound starting in Q3 and lasting into next year as auto sales presumably pick up. In a recent update, the company reported that it continues to see increased buying activity in most of its markets as stay-at-home orders are gradually relaxed. It added that “new and used vehicle sales volume and fixed operations gross profit have performed at or above our expectations and continue to improve week by week,” with sales expected to recover further by summer.
The stock, meanwhile, has shown relative strength against the broader auto space and has established a rising trend above its 25-day and 50-day lines since bottoming in March. I look for the stock to eventually recover its old high as the economy opens up further.
Bottom Line on Auto Stocks
The companies discussed here are among the top performers in the auto industry and should be able to benefit from any improvement in economic conditions in the months ahead. Assuming a new bull market is underway, investors should expect that auto stocks will continue to show relative strength as this important industry gradually recovers ground lost during the shutdowns.
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Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More