Auto Sales On Top Gear: ETFs And Stocks To Ride On

By | July 9, 2015

Scalper1 News

The U.S. automotive industry is on top gear with fat wallets, rising income and increasing consumer confidence adding adequate fuel. This is especially true as auto sales rose 4.4% to 8.52 million units in the first half of 2015, representing the best six months in a decade. And that’s not all, auto sales are on track to hit 17 million for full-year 2015, a record not seen in the last 15 years. Notably, June sales increased 3.9% to 1.48 million units, driven by an 11% rise in light-truck sales. Five of the six major American and Japanese automakers reported strong sales for the last month led by Nissan ( OTCPK:NSANY ), which saw 13% growth. This was followed by the sales increase of 8.2% for Chrysler, 4.2% for Honda (NYSE: HMC ), 4.1% for Toyota (NYSE: TM ) and 1.5% for Ford Motor (NYSE: F ). However, sales at General Motors (NYSE: GM ) dropped 3% in June. Outlook Remains Solid The auto industry is poised to grow given that the economy is gaining traction after a first-quarter slump. The labor market is strengthening, consumer spending is increasing, and the housing market is improving gradually. Further, lower gasoline prices are providing huge boon to auto sales. While a slowdown in China and instability in Europe are the major headwinds, higher demand for pickups and crossovers, a plethora of new models, lower interest on auto loans and the need to replace aging vehicles should continue to drive the industry for the rest of the year. Adding to these strengths would be the summer selling season, which has started off strongly for automakers, and the holiday season at the end of the year which has a tradition of driving sales. Apart from these, about 60% of the industries falling under the auto sector have a strong Zacks Rank in the top 28%, suggesting healthy growth. This is well confirmed by the sector’s strong earnings growth of 8.7% for the second quarter and 22.4% for the third. Overall, auto is expected to be the best sector of 2015 among our 16 Zacks sectors with earnings growth of 24.8%. Given the bullish trends, investors may want to take a closer look at the ETFs and stocks from this corner of the broad market and could ride high with the following products: ETF to Buy Investors should note that there is only a pure play First Trust NASDAQ Global Auto ETF (NASDAQ: CARZ ) in the space that provides global exposure to the 37 auto stocks by tracking the NASDAQ OMX Global Auto Index. It is a large-cap-centric fund and highly concentrated on the top 10 holdings with about 61% of assets, suggesting that company-specific risk is high and that the top 10 firms dominate the returns of the fund. The four prime automakers – Ford, Honda, Toyota, and General Motors – are among the top five holdings. In term of country exposure, Japan takes the top spot at 35.4% while the U.S. and Germany round off the next two spots with 23.8% and 20.1% share, respectively. CARZ is under-appreciated and ignored by investors as indicated by its AUM of only $33.4 million and average daily trading volume of just under 8,000 shares. The product charges 70 bps in fees per year and has gained about 4.4% so far this year. The fund has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook. Stocks to Buy We have used our Zacks stock screener to find out the best stocks in the auto space having a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Style Score of ‘B’ or better. The Growth Style Score analyzes the growth prospects of a company with a thorough analysis of the income statement, balance sheet and cash flow statement that evaluate its financial health and the sustainability of its growth trajectory. The results show that stocks with Growth Style Scores of A or B when combined with Zacks Rank of 1 or 2 offer the best upside potential. Meritor Inc. (NYSE: MTOR ) Based in Troy, Michigan, Meritor is a leading manufacturer and supplier of automotive parts across the globe. It supplies drivetrain, mobility, braking and aftermarket solutions for commercial vehicle and industrial markets under the brand names – Meritor, Meritor WABCO, Euclid, Trucktechnic, Mascot, and Meritor AllFit. Meritor has seen rising earnings estimates by 2 cents for the current fiscal year over the past 30 days. The 2015 Zacks Consensus Estimate of $1.40 represents a substantial year-over-year growth of 36.9% versus the industry average of 6.82%. Further, the company delivered positive earnings surprises in the last four quarters, with an average beat of 63.56%. The stock currently has a Zacks Rank #2 with a Growth Style Score of A, suggesting incredible growth in the months ahead. PACCAR Inc. (NASDAQ: PCAR ) Based in Bellevue, Washington, PACCAR is a global leading manufacturer and designer of premium light, medium, and heavy-duty trucks operating under the Kenworth, Peterbilt and DAF brand names. The stock has seen positive earnings estimate revisions from $4.51 to $4.53 per share for 2015 over the past 30 days, representing a year-over-year increase of 18.65% versus the industry average of 13.22%. The company delivered an average positive earnings surprise of 4.32% in the last four quarters. The stock has a Zacks Rank #2 with a Growth Style Score of B, meaning that it could be primed for more growth in the months to come. Original Post Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Scalper1 News

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