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On Wednesday, President Trump continued to step up his efforts to increase U.S. jobs and promote those industrial sectors which had found special mention is his election promises. Speaking after a meeting with leaders of the auto sector and union workers, Trump said his administration would revisit Obama era emission norms in a bid to boost automotive production within the U.S.

Rolling back the efficiency standards which Obama signed a short while before stepping down from office will result in major savings for automakers. Additionally, Trump reiterated his promise to renegotiate trade deals in order to promote domestic production. In such an environment, investing in stocks from the sector and related industries is likely to be a profitable option.

Trump Promises Support, Asks for More U.S. Jobs

Following his meeting with the heads of major automakers and workers in Detroit, Trump proclaimed that: “The assault on the American auto industry is over.” The President was visiting the American Center for Mobility, a facility used for testing and development for automated vehicles. Trump reiterated his pledge to incentivize production within the U.S. and penalize those companies which continue to conduct such operations abroad.

Trump said that he would engage in deregulation while also renegotiating free trade agreements in order to meet these objectives. In return, he said he expected automotive companies to step up hiring in the U.S. One of the recurrent themes throughout his electoral campaign has been “Buy American-Hire American.”

The President went on to showcase announcements from General Motors Company (GM - Free Report) , Ford Motor Company (F - Free Report) and Fiat Chrysler Automobiles N.V. (FCAU - Free Report) , all of whom have pledged to retain jobs within the U.S. Alternatively, they have promised to raise their investments in U.S. facilities. On Wednesday, GM said that it would retain or increase 900 positions at its facilities in Michigan, 220 of which would be new.  

Automakers Welcome Move, Cost Reductions Likely

A short while before Trump began his speech, the Environmental Protection Agency (EPA) stated that it would reexamine the fuel efficiency standards put in place by the Obama administration. The new standards were projected to improve fuel efficiency to 54.5 miles per gallon for light-duty trucks and cars. Such a target was expected to be achieved by 2025. Auto companies have objected to these new regulations, saying that they would lead to a jump in compliance costs.

This is indeed true since they would lead to an additional cost of $200 billion for the auto industry over the next 13 years, according to the Obama administration. However, they are expected to save car owners more than a trillion dollars over the lifetime of their vehicles. Immediately after the announcement, members of the auto industry were effusive in their praise for such a move. Prominent among them was the chief executive of industry lobbying group Alliance of Automobile Manufacturers.

The auto industry has indicated on several occasions that it is in favor of achieving emission norms targets through the adoption of technologies which switch off engines at traffic lights. Additionally, they think regulators should consider inter-vehicle communication and ride hailing systems as part of the sector’s greenhouse gas emission targets.

Our Choices

President Trump’s latest announcement is a clear indication that he intends to follow through on key campaign promises. The auto sector is likely to benefit significantly from his policy decisions, especially as a result of a reduction in compliance costs thanks to easier emission norms.

Adding stocks from the sector to your portfolio looks likes a smart choice at this point. However, picking winning stocks may prove to be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

Fiat Chrysler is engaged in designing, engineering, manufacturing, distributing and selling vehicles and components and production systems.

Fiat Chrysler has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The company has expected earnings growth of 12.1% for the current year. Its earnings estimate for the current year has improved by 15.9% over the last 60 days. The stock has returned 28.6% over the last three months, outperforming the Zacks Automotive - Foreign sector, which has declined 5.3% over the same period.

Renault SA (RNLSY - Free Report) manufactures, markets and distributes vehicles on a global scale. In Jan 2017, the company’s chief executive Carlos Ghosn said that auto manufacturers which have production facilities in the U.S. are likely to step up production during the Trump presidency.

Renault has a Zacks Rank #1 and a VGM Score of A. Its earnings estimate for the current year has improved by 9.1% over the last 60 days. The stock has declined 1.7% over the last three months, outperforming the Zacks Automotive - Foreign  sector, which has lost 5.3% over the same period.

Visteon Corporation (VC - Free Report) operates as an automotive supplier engaged in the design, engineering and manufacturing of innovative climate, electronic, interior and lighting products for vehicle manufacturers.

Visteon has a VGM Score of B. The company has expected earnings growth of 3.7% for the current year. Its earnings estimate for the current year has improved by 9.9% over the last 30 days. The stock has returned 23% over the last three months, outperforming the Zacks Automotive - Original Equipment sector, which has returned 8.4% over the same period. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wabash National Corporation (WNC - Free Report) is one of the leading manufacturers of semi trailers in North America.

Wabash National has a Zacks Rank #1 and a VGM Score of B. Its earnings estimate for the current year has improved by 19.7% over the last 60 days. The stock has gained 38.2% over the last three months, outperforming the Zacks Automotive - Original Equipment sector, which has returned 8.4% over the same period.

American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) is a leading supplier of driveline and drivetrain systems, modules and components for the light vehicle market.

American Axle & Manufacturing Holdings has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth 3.8% for the current year.  Its earnings estimate for the current year has improved by 2% over the last 30 days. The stock has returned 9.7% over the last three months, outperforming the Zacks Automotive - Original Equipment  sector, which has returned 8.4% over the same period.

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