Holiday Season Driving Up Auto Sales: ETFs and Stocks to Consider
This holiday shopping season, the U.S. automotive industry is clearly on top gear. Early promotional deals and discounting frenzy on cars and trucks for Thanksgiving and Black Friday lured customers to showrooms last month. But it was the incredible drop in gasoline prices that did the real magic.
And since auto sales indicate economic well being, a strengthening job market, rising wages and increasing wealth are driving up the industry’s profits in the busiest shopping season of the year. Moreover, a lower interest on auto loans, a plethora of new models and need of replacement of aging vehicles are contributing no less to the big jump in sales (read: Add Wealth to Your Portfolio with These ETFs).
Auto sales rose 4.6% year over year in November to 1.3 million, lifting the seasonally adjusted annual rate to 17.2 million units. This is the strongest annual pace of sales seen in over a decade and is well ahead of the market expectation of 16.7 million polled by Thomson Reuters. Analysts expect about 30% of the total sales to have come in the Thanksgiving weekend.
Though all the six major American and Japanese automakers reported better-than-expected sales for last month, Chrysler once again led the way higher with double-digit growth of 20%. This was followed by sales increase of 6.5% for General Motors (GM), 9% for Honda (HMC), and 3% for Toyota (TM). However, Ford Motor (F) and Nissan (NSANY) saw modest declines of 1.8% and 3.1%, respectively.
The robust numbers have propelled the auto stocks and spread bullishness into the entire industry across the globe. Given the solid jump in auto sales, investors may want to take a closer look at the ETFs and stocks from this corner of the broad market and could ride on the holiday optimism with the following products.
ETF in Focus
Investors should note that there is only a pure play First Trust NASDAQ Global Auto ETF (CARZ) in the space that provides global exposure to the 36 auto stocks by tracking the NASDAQ OMX Global Auto Index.
It is a large cap centric fund and highly concentrated on the top 10 holdings with about 63% of assets suggesting that company-specific risk is high and the top 10 firms dominate the returns of the fund. The four prime automakers – Toyota, General Motors, Ford, and Honda – are among the top five holdings with a combined share of 32.7% (read: Lukewarm Auto Stock Earnings Put Car ETF in Focus).
In term of country exposure, Japan takes the top spot at 38% while U.S. and Germany round off the next two spots with 23.4% and 20.4% share, respectively. CARZ is under-appreciated and ignored by investors as indicated by its AUM of only $36.9 million and average daily trading volume of just under 18,000 shares. The product charges 70 bps in fees and expenses and has gained about 5.1% over the trailing one-month period. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.
Stocks in Focus
While there are number of stocks that saw solid trading over the past one month, we have highlighted two that surged in double digits and have a Zacks Rank #1 or 2, suggesting their continued outperformance to close out the year.
Motorcar Parts of America Inc. (MPAA)
Based in Torrance, California, Motorcar Parts is a leading manufacturer of auto parts like replacement starters, alternators, wheel hub assemblies, bearings & master cylinders used for imported and domestic passenger vehicles, light trucks, and heavy-duty applications in the United States and Canada. The company’s full line of alternators and starters are also remanufactured for vehicles imported from Japan, Germany, Sweden, France, and Korea.
MPAA has seen solid earnings estimate revisions for both the current quarter and year over the past month. The consensus estimate for the current quarter has risen from 32 cents per share to 35 cents while the current year estimates climbed from $1.46 to $1.80 per share over the past 30 days. This suggests a bright future for this company.
Motorcar Parts surged 24.2% over the past one month to hit a new 52-week high of $36.43. The stock currently has a Zacks Rank #1 (Strong Buy) and falls in the solid industry with a Zacks Rank in the top 13% at the time of writing, meaning it could be primed for more growth in the months ahead (read: Best and Worst Performing ETFs of November).
Meritor Inc. (MTOR)
Based in Troy, Michigan, Meritor is a leading manufacturer and supplier of automotive parts across the globe. It supplies drivetrain, mobility, braking and aftermarket solutions for commercial vehicle and industrial markets under the brand names – Meritor, Meritor WABCO, Euclid, Trucktechnic, Mascot, and Meritor AllFit.
Meritor has also seen rising earnings estimates for the current quarter and year over the past 30 days. The consensus estimate for the current quarter and current year stood at 30 cents and $1.36 per share, respectively. These are up from 24 cents for the current quarter and $1.09 per share for the current year over the last 30 days. Additionally, the estimates represent a whopping year-over-year growth of 147.9% and 32.9% for this quarter and the year, respectively. This suggests the company’s incredible potential to grow in the coming months.
Further, the stock gained 21.3% in its value over the past month and currently has a Zacks Rank #2 (Buy), underscoring the company’s solid position. MTOR also has a solid Zacks Industry Rank in the top 40% at the time of writing (see: all the Consumer Discretionary ETFs here).
Bottom Line
Holiday fervor, massive discounts, improving economy, and increased consumer spending will continue to drive U.S. auto sales higher in the weeks ahead, making the above ETFs and stocks compelling choices for investors to play this holiday season.
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