The U.S. auto industry witnessed a slowdown in 2019. Though auto sales dipped 1.3% per Autodata, automakers hit the 17 million sales mark for the fifth straight year, buoyed by cheap credit, low unemployment and healthy consumer sentiment.
The Detroit Big 3 automakers and many large foreign competitors reported slips of 3% or less in sales. Passenger car sales suffered a persistent downside with sales dropping 10% while truck sales inched up 2.6% and electric vehicles jumped 37%. Last year, 69% of new vehicles sold were trucks or SUVs (read: Most Loved and Hated ETFs of 2019).
Of the six major American and Japanese automakers, Nissan Motor (NSANY - Free Report) stood at the bottom of the table, registering a 9.9% decrease in sales last year followed by the declines of 3% for Ford Motor (F - Free Report) , 2.3% for General Motors (GM - Free Report) , 1.8% for Toyota Motor (TM - Free Report) and 1.4% for Fiat Chrysler (FCAU - Free Report) . Honda Motors (HMC - Free Report) saw a modest 0.2% rise in sales.
The auto industry seems stable this year with automakers planning to introduce more than 60 new or refreshed models according to LMC Automotive and J.D. Power. Both Cox Automotive and LMC Automotive/J.D. Power predict U.S. auto sales of 16.7 million for 2020 while Edmunds expects 17.1 million vehicles.
A resilient economy and higher consumer confidence will continue to fuel auto demand this year. A strong labor market would also encourage consumers to buy more vehicles. A boost in the housing sales and lower lending rates will further drive demand for new vehicles. Additionally, the Fed signals toward lower interest rate for some more time to push more consumers to avail of loans while buying vehicles. The combination of these factors bodes well for the industry though a spike in gas prices and rising vehicle rates could pose some challenges (read: Top-Ranked ETFs, Stocks From Top Sector of the Last Decade).
Moreover, the auto sector has a compelling valuation with a P/E ratio of 12.15, the lowest of all the 16 Zacks sectors. This could lead to an upside in auto stocks this year. Below we highlight the pure play auto ETFs and a few stocks that could be attractive picks for 2020:
First Trust NASDAQ Global Auto ETF (CARZ - Free Report)
This fund offers a pure play global exposure to 33 auto stocks by tracking the NASDAQ OMX Global Auto Index. It is moderately concentrated on the firms in its basket with each making up for not more than 8.7% share. CARZ has a lower level of $18.7 million in AUM and trades in a small average daily trading volume of about 3,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with High risk outlook.
Unique Fabricating Inc. (UFAB - Free Report)
This is a supplier of components in the automotive and industrial appliance market. The stock has seen positive earnings estimate revision of a penny for this year over the past 90 days and has an expected earnings growth rate of 155.7%. Unique Fabricating has a Zacks Rank # 1 (Strong Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
SPX Corporation (SPXC - Free Report)
It is a diversified, global supplier of infrastructure equipment with scalable growth platforms in heating, ventilation and air conditioning (HVAC), detection and measurement, and engineered solutions. The stock has witnessed a positive earnings estimate revision of 4 cents over the past three months for 2020 with an estimated earnings growth rate of 8.09%. It has a Zacks Rank #2 (Buy) and a VGM Score of B (read: Best & Worst ETF Zones of 2019).
Blue Bird Corporation (BLBD - Free Report)
The company is engaged in designing, engineering, manufacturing and sale of school buses and related parts. The stock has seen positive earnings estimate revision of a cent for the fiscal year (ending Sep 2020) over the past 60 days and has an expected earnings growth rate of 25.5%. It has a Zacks Rank 2 and a VGM Score of A.
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