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ETF & Stocks to Ride on Auto Industry Strength

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The U.S. auto industry has been showing strength as the economy reopens and more people shift to private conveyance due to the COVID-19 pandemic. This is especially true as automakers reported a sharp rise in Q2 sales on the back of high demand for SUVs. According to Bloomberg, new car sales jumped 51% year over year to 4.4 million vehicles in the second quarter (read: ETFs to Play Reopening Trade as New US COVID-19 Cases Drop).

The six major American and Japanese automakers have reported double-digit growth. Of them, Toyota Motor (TM - Free Report) was the biggest winner, registering a 73% surge in sales. This was followed by 68.1% increases for Nissan (NSANY - Free Report) , 65.7% for Honda Motors (HMC - Free Report) , 32.2% for Stellantis (STLA - Free Report) formed after the merger of Fiat Chrysler and PSA Group, 39.7% for General Motors (GM - Free Report) , and 9.6% for Ford Motor (F - Free Report) .

The solid trend is likely to continue for the rest of the year, given that a large number of people are opting for private transport along with a novel slew of electric vehicles due to be unveiled. Additionally, low interest rates and government stimulus have been driving solid demand for autos. With millions of Americans now fully vaccinated, more people are expected to go out, thereby leading to higher demand.

Demand is accelerating in spite of the price hike due to the worldwide shortage of semiconductor chips. The average transaction price for a new vehicle in June is expected to reach a record $40,206, according to J.D. Power and LMC Automotive. The previous high was $38,539 set in May. Higher pricing has resulted in higher profits for automakers and retailers. Consumer spending on new vehicles is expected to reach a second-quarter record of $149.7 billion, up 60.7% from 2020 and 27.9% from 2019.

Further, with continued acceleration in digitalization, automakers have been propelling their online services, thereby providing huge boost to the industry.

Below we highlight the pure play auto ETF and a few stocks that could be attractive picks for the remainder of 2021:

First Trust NASDAQ Global Auto ETF (CARZ - Free Report)

This fund offers a pure-play global exposure to 34 auto stocks by tracking the NASDAQ OMX Global Auto Index. It has a moderate concentration across components as each of these make up for no more than 8.4% share. CARZ has $69.5 million in AUM and trades in a small average daily trading volume of about 23,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 5 Sector ETFs Hitting New Highs Amid Market Volatility).

Cummins Inc. (CMI - Free Report)

This company is a leading global designer, manufacturer and distributor of diesel and natural gas engines and powertrain-related component products. The stock witnessed positive earnings estimate revision of $2.07 for this year over the past 60 days. It has a Zacks Rank #1 (Strong Buy) and Growth Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here.

LKQ Corporation (LKQ - Free Report)

This company is one of the leading providers of replacement parts, components, and systems that are required to repair and maintain vehicles. The stock has witnessed a positive earnings estimate revision of 7 cents for this year over the past 60 days and has an estimated growth rate of 23.5%. It has a Zacks Rank #2 (Buy) and a Growth Score of A.

Polaris Inc. (PII - Free Report)

This company designs, engineers and manufactures off-road and on-road vehicles. The stock has witnessed positive earnings estimate revision of 12 cents for this year over the past 60 days and has an estimated earnings growth rate of 19.8%. It has a Zacks Rank #2 and a Growth Score of A.

Adient PLC (ADNT - Free Report)

It is one of the world’s largest automotive seating suppliers. It has seen positive earnings estimate revision of 15 cents for the fiscal year (ending September 2021) over the past 90 days and has an estimated earnings growth rate of 8,700%. Adient has a Zacks Rank #1 and a Growth Score of A.

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