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Forget Ford (F), Buy These 4 Auto Stocks Instead

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Ford Motor Co. (F - Free Report) expects first-quarter adjusted earnings per share in the range of 30–35 cents, lower than the 68 cents reported in the prior-year quarter. The company’s projection also falls short of the Zacks Consensus Estimate of 45 cents per share. The low expectations are attributable to increased costs, lower volumes as well as unfavorable currency translations.

Earlier, Ford had projected pre-tax profit in 2017 to be lower than that of 2016 owing to higher investments in electrification, autonomy and mobility. The year’s pre-tax profit expectation has been pegged at $9 billion, lower than the $10.4 billion recorded in 2016, as the company executes planned investments in emerging markets.

While Ford has provided weak view for the near term, the auto industry is expected to benefit overall. The industry is likely to receive support from President Donald Trump as well as benefit from the growing driverless market. Growth in the industry can also be seen in the consistently increasing yearly U.S. auto sales post the financial crisis.

Trump’s Support

The most immediate relief that the industry can hope for is a relaxation in the current timeline related to the fuel-efficiency standard regulations set for 2022–2025. Trump’s decision to re-examine the mid-term review of the agreement signed between automakers and the government in 2011 is expected to benefit manufacturers.

Environmental Protection Agency (EPA) officials would be given time until Apr 2018 to reevaluate the appropriateness of the standards, which requires automakers to increase the average fuel economy of cars and trucks in real-world driving to 36 mpg by 2025. Manufacturers’ cost increase significantly to meet these standards, thereby risking business growth and employment.

Trump’s future policies are also expected to promote manufacturing of vehicles and lower costs concurrently. Trump will be reviewing trade deals, particularly NAFTA, that he believes has been adversely affecting the U.S. auto industry and its workers. The Trump administration is expected to provide huge relief and growth opportunities to the auto industry.

Tech Appeal

Automakers are also expected to benefit from the growing market of driverless vehicles. The recent bid announcement for the acquisition of Mobileye N.V. by Intel for $15.3 billion has revealed the importance of auto part manufacturers for tech giants. Microsoft also revealed a new patent licensing agreement with Toyota, which includes broad coverage for connected car technologies.

Growth in the auto tech sector is expected to be steep and auto part suppliers are likely to benefit significantly. Per CB Insights, a tech market intelligence platform, financing in the auto tech startup sector was over $1 billion in 2016. The benefits are likely to spread across the industry as more companies look to enhance technology in their vehicles.

An Overview of the Industry

The Zacks classified Auto, Tires and Trucks sector holds an Industry Rank #1. Moreover, most industries within the sector are in the top 40%, compared to over 250 industries.

Further, looking at the industry’s Price-to-Earnings multiple, a good multiple for valuing automakers, investors could be interested in the sector.

The industry currently has a trailing 12-month (TTM) PE ratio of 11.05. This level compares favorably with what the industry witnessed in the last five years. The ratio is lower than the midpoint of 12.41 and is significantly below its high of 15.32.

Moreover, it compares favorably with the market at large, as the current PE for the S&P 500 is at 20.21 and the median level is 17.31.

Stocks to Consider

While Ford may not be the ideal stock to invest right now, we have shortlisted a number of other auto stocks which may prove to be beneficial for the investors. These stocks have a trailing 12-month price-to-earnings ratio of below 10, indicating they may be good value picks. Moreover, the expected forward P/E is below the P/E TTM, reflecting a more value oriented path lies ahead for these stocks.

Further, the stocks are backed by a good Zacks Rank. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Fiat Chrysler Automobiles N.V.  operates as an international automotive company. It is engaged in designing, engineering, manufacturing, distributing and selling vehicles and components and production systems. The company’s PE TTM is pegged at 6.09 while the expected forward P/E is 5.38. The stock carries a Zacks Rank #1.

Lear Corporation (LEA - Free Report) is a leading global supplier of automotive seating systems, electrical distribution systems and electronics. While the company’s P/E TTM is 9.85, the expected forward PE is 8.94. The stock carries a Zacks Rank #1.

Daimler AG is a globally leading producer of premium passenger cars and the largest manufacturer of commercial vehicles in the world. The company’s P/E TTM is 8.58 while the expected forward PE is 8.5. The stock carries a Zacks Rank #2 (Buy).

American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) is a world leader in the design, engineering and manufacture of driveline systems for light trucks and sport utility vehicles. While the company’s P/E TTM is 5.79, the expected forward PE is 5.51. The stock carries a Zacks Rank #2.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

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Ford Motor Company (F) - free report >>

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