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Tesla & Other Automotive Stocks to Zoom in 2020

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Since the financial crisis a decade ago, U.S. vehicle sales have only gone up. Sales hit a record 17.6 million in 2016 after it had bottomed out at 10.4 million in 2009. But since then, sales have been near the 17-million mark, providing an unusual steady trend for an industry that is particularly cyclical in nature.

Industry experts, however, expect the auto industry to slow down a bit this year. Analysts now expect U.S. auto sales for the year to decline between 1% to 2%. What’s more, the auto industry in China, the world’s largest auto market, is expected to witness a 2% fall in vehicles sales this year, according to the China Association of Automobile Manufacturers (CAAM). By the way, stricter emission standards may hamper auto sales in the European Union region.

But despite the moribund sales prediction, completely neglecting auto stocks won’t be the right thing to do. Especially, if you look at Tesla, Inc. (TSLA - Free Report) ! Wall Street is currently loving the electric carmaker. It has now become the most valuable U.S. automaker in history and its market cap is almost double that of Ford and General Motors combined.

According to data from the Center for Research in Security Prices, Tesla now has a market value of $86 billion, which tops the previous record high of $76.1 billion for shares of Ford in 1999. Needless to say, the Italian car manufacturer Fiat Chrysler is a distant fourth, with a market value of around $22 billion.

But does Tesla’s meteoric rise raises doubt about its future price movement? Certainly not! Even though Tesla recently unveiled its much-awaited all-electric “Cybertruck,” the Model 3 designed for electric-powered performance has been a game changer. And with the company delivering 112,000 vehicles (mostly Model 3) in the fourth quarter of 2019, the company is poised to gain this year as well. The highly-anticipated launch of Model Y, a small crossover vehicle, will also boost the company this year.

Tesla’s orders, in the meantime, have been increasing steadily. Throughout last year, Tesla’s orders grew at an impressive rate. And since the federal credit for U.S.-based buyers of Tesla vehicles has been trimmed, orders will continue to rise this year. Additionally, demand for Model X and S has been increasing sequentially again. Tesla CFO Zach Kirkhorn confirmed that the company is “increasing production on S and X lines in response to increasing demand.”

Tesla, thus, possesses a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has risen 46% over the past 60 days. The company’s expected earnings growth rate for the current year is 79.7%, way more than the Automotive - Domestic industry’s estimated rise of 7.8%. Tesla, in fact, has outperformed the broader industry over the past year (+43.0% vs +18.6%). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

But why just invest in Tesla? Investors should be a little more adventurous and increase their bets on other auto stocks poised to gain in the near term. In this process, you can double your returns. After all, the healthy U.S. economy, low gas prices, low interest rates and longer loan terms bode well for the auto industry this year. So, here are the obvious choices —

Blue Bird Corporation (BLBD - Free Report) ) designs, engineers, manufacturesand sells school buses and related parts in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 0.5% over the past 60 days. The company, which is part of the Automotive - Domestic industry, is expected to record earnings growth of 80% and 25.5% for the current quarter and year, respectively.

PACCAR Inc (PCAR - Free Report) designs, manufactures, and distributes light, medium, and heavy-duty commercial trucks in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has climbed 0.1% over the past 60 days. The company, which is part of the Automotive - Domestic industry, is expected to see earnings growth of 9.8% in the current year.

AutoZone, Inc. (AZO - Free Report) retails and distributes automotive replacement parts and accessories. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 1.1% over the past 60 days. The company, which is part of the Automotive - Retail and Wholesale - Parts industry, is expected to post earnings growth of 3.7% and 4.3% in the current quarter and year, respectively.

Motorcar Parts of America, Inc. (MPAA - Free Report) manufactures, remanufactures, and distributes heavy-duty truck, industrial, marine, and agricultural application replacement parts. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 1.7% up over the past 90 days. The company, which is part of the Automotive - Replacement Parts industry, is expected to see earnings growth of 22.9% and 5.2% in the current quarter and year, respectively.

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