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The auto industry is going through a lean patch. Leading rating agency Moody’s has painted a bleak picture for the auto stocks because of the declining demand in the United States and China, the world’s two biggest auto markets, and laxity in the loan standards. In fact, the rating agency has predicted that auto sales will decrease about 3% in 2018 to 16.8 million vehicles from 17.4 million units in 2016.
Challenges Abound
The auto industry is in a transition phase. The compulsion of manufacturing electric vehicles in a profitable way is becoming a big challenge for automakers. Per the Moody’s report, “The auto industry is challenging at the best of times due to cyclicality, low returns on capital and substantial, non-deferrable investments to develop new models.”
Moreover, buyers are fast getting inclined toward sports utility vehicles (SUVs) as gas price is currently quite low. Also, the rating agency does not foresee any considerable rise in fuel price through 2020, making the transition more challenging for automakers across the globe. On the other hand, in this changed scenario, original equipment manufacturers (OEMs) are also braving the odds of more strict regulations on carbon emission, autonomous driving and ride-sharing services, and battery electric vehicles.
Also, according to Moody’s, huge competition among banks, finance companies and credit unions have resulted in loosening of the underwriting conditions. Presently, loan terms in the United States are more than six months longer than they were in 2010. Not only this, lenders are being allowed the facility to roll a significant part of the unpaid balance into new loans. This is leading to rising delinquency and its long-term effect can be serious.
Moreover, per the report, used car prices are declining as millions of leases are nearing expiry. This is not bad news for the customers but certainly not for automakers and dealers. In fact, low prices of used vehicles compel automakers to offer higher discounts to customers on new vehicles, which in turn put strain on their margins.
4 Picks Amid Bleak Outlook
Amid this gloomy outlook, there are certainly a few auto stocks with strong inherent value and robust earnings potential.
We have zeroed in on four such Auto stocks with the help of the Zacks Stock Screener. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Then we narrowed down the list with the help of our new Style Score system, considering stocks with a VGM Score of either A or B. VGM is constructed by taking into consideration the value, growth and momentum aspect of a stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
In order to check the earnings potential – both historical and future – we have taken into consideration some financial metrics such as average EPS surprise of the last four quarters and percentage change in the Zacks Consensus Estimate for the current quarter over the past four weeks. This validates the past and the present earnings potential of a stock.
In order to consider the future earnings potential, we take into consideration long-term growth consensus estimate which actually projects annualized EPS growth rate of a stock for the next three to five years. It has been ensured that all these earnings-related metrics have a value of more than 5.
Here are the four auto stocks:
Indianapolis, IN-based Allison Transmission Holdings, Inc. (ALSN - Free Report) is engaged in the manufacturing of fully-automatic transmissions for medium and heavy-duty commercial vehicles, medium and heavy-tactical U.S. military vehicles and hybrid-propulsion systems for transit buses.
Detroit, MI-based American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) is a leading supplier of driveline and drivetrain systems, modules and components for the automotive industry.
U.K.-based Fiat Chrysler Automobiles N.V. is engaged in designing, engineering, manufacturing, distributing and selling vehicles and components and production systems.
Headquartered in Oshkosh, WI, Oshkosh Corporation (OSK - Free Report) is engaged in designing, manufacturing and marketing of specialty vehicles and vehicle bodies.
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
4 Auto Stocks Driving Smooth on a Rough Track
The auto industry is going through a lean patch. Leading rating agency Moody’s has painted a bleak picture for the auto stocks because of the declining demand in the United States and China, the world’s two biggest auto markets, and laxity in the loan standards. In fact, the rating agency has predicted that auto sales will decrease about 3% in 2018 to 16.8 million vehicles from 17.4 million units in 2016.
Challenges Abound
The auto industry is in a transition phase. The compulsion of manufacturing electric vehicles in a profitable way is becoming a big challenge for automakers. Per the Moody’s report, “The auto industry is challenging at the best of times due to cyclicality, low returns on capital and substantial, non-deferrable investments to develop new models.”
Moreover, buyers are fast getting inclined toward sports utility vehicles (SUVs) as gas price is currently quite low. Also, the rating agency does not foresee any considerable rise in fuel price through 2020, making the transition more challenging for automakers across the globe. On the other hand, in this changed scenario, original equipment manufacturers (OEMs) are also braving the odds of more strict regulations on carbon emission, autonomous driving and ride-sharing services, and battery electric vehicles.
Also, according to Moody’s, huge competition among banks, finance companies and credit unions have resulted in loosening of the underwriting conditions. Presently, loan terms in the United States are more than six months longer than they were in 2010. Not only this, lenders are being allowed the facility to roll a significant part of the unpaid balance into new loans. This is leading to rising delinquency and its long-term effect can be serious.
Moreover, per the report, used car prices are declining as millions of leases are nearing expiry. This is not bad news for the customers but certainly not for automakers and dealers. In fact, low prices of used vehicles compel automakers to offer higher discounts to customers on new vehicles, which in turn put strain on their margins.
4 Picks Amid Bleak Outlook
Amid this gloomy outlook, there are certainly a few auto stocks with strong inherent value and robust earnings potential.
We have zeroed in on four such Auto stocks with the help of the Zacks Stock Screener. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). Then we narrowed down the list with the help of our new Style Score system, considering stocks with a VGM Score of either A or B. VGM is constructed by taking into consideration the value, growth and momentum aspect of a stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
In order to check the earnings potential – both historical and future – we have taken into consideration some financial metrics such as average EPS surprise of the last four quarters and percentage change in the Zacks Consensus Estimate for the current quarter over the past four weeks. This validates the past and the present earnings potential of a stock.
In order to consider the future earnings potential, we take into consideration long-term growth consensus estimate which actually projects annualized EPS growth rate of a stock for the next three to five years. It has been ensured that all these earnings-related metrics have a value of more than 5.
Here are the four auto stocks:
Indianapolis, IN-based Allison Transmission Holdings, Inc. (ALSN - Free Report) is engaged in the manufacturing of fully-automatic transmissions for medium and heavy-duty commercial vehicles, medium and heavy-tactical U.S. military vehicles and hybrid-propulsion systems for transit buses.
Zacks Rank: #1
VGM Score: B
Avg EPS Surprise (Last 4 Quarters):43.1%
Change in Q1 Estimate (4 Weeks): 27.4
Long-Term Growth Consensus Estimate: 10
Detroit, MI-based American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) is a leading supplier of driveline and drivetrain systems, modules and components for the automotive industry.
Zacks Rank: #1
VGM Score: A
Avg EPS Surprise (Last 4 Quarters): 18.9%
Change in Q1 Estimate (4 Weeks): 7.1
Long-Term Growth Consensus Estimate: 8.1
U.K.-based Fiat Chrysler Automobiles N.V. is engaged in designing, engineering, manufacturing, distributing and selling vehicles and components and production systems.
Zacks Rank: #2
VGM Score: A
Avg EPS Surprise (Last 4 Quarters): 17
% Change in Q1 Estimate (4 Weeks): 28.6
Long-Term Growth Consensus Estimate: 19.1
Headquartered in Oshkosh, WI, Oshkosh Corporation (OSK - Free Report) is engaged in designing, manufacturing and marketing of specialty vehicles and vehicle bodies.
Zacks Rank: #1
VGM Score: A
Avg EPS Surprise (Last 4 Quarters): 53.2
% Change in Q1 Estimate (4 Weeks): 11.7
Long-Term Growth Consensus Estimate: 16.5
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>