by Jim Woods | July 19, 2012 8:25 am
When it comes to a barometer of the economy, there’s one sector that investors can look at to drive home current conditions. That sector is autos, and so far in 2012, the industry has been remarkably robust.
Year-to-date U.S. sales through June 30 are up nearly across the board, with the major manufacturers nearly all seeing big gains in total sales. Sales metrics in other top markets such as China also have been strong, and that’s helped defray the weakness in debt-ridden Europe.
What’s remarkable about the sales gains in the U.S. is that they’ve occurred despite an early year spike in gasoline prices, anemic GDP growth and persistently high unemployment.
But despite the revved-up first-half auto sales, a lot of knocks and pings remain on the biggest stocks in the sector. Because the market is a forward-looking mechanism, we’ve seen a decided lack of confidence in the future outlook for the sector’s behemoths. Conversely, there’s been a boom in Japanese, German and boutique automaker stocks, and that tells us that investors are willing to bet on autos making a comeback, and that serve a niche and/or growing market.
Here’s my list, ranked from worst to best, of auto stocks investors should drive now:
This gigantic ship saw a decent, if not stellar, year-over-year gain in U.S. auto sales of 4.3% through the first six months of 2012. General Motors (NYSE:GM) has sold 1,315,713 total vehicles in the country from January through June, but that hasn’t prompted auto stock buyers to climb into the driver’s seat. GM shares were down 4.3% through the first half of the year, and the selling is largely due to fears that a global recession will put more pressure on sales, revenue and earnings in the second half of the year.
The virtually stalled performance of GM shares comes despite some very strong gains in its June sales in the all-important China auto market. The company reported record June China sales that climbed 10% from a year ago. GM also had record sales in the country for the first six months of 2012, with nearly 1.42 million vehicles sold — that’s 11% better than a year ago.
But despite the sound sales metrics, GM stock trades near its 52-week low, and the shares are trading below both the short-term, 50-day moving average, as well as the long-term, 200-day moving average. Traders and investors should let this stock’s engine warm up before taking it out for a spin.
Fellow American auto giant Ford (NYSE:F) sold fewer total vehicles in the U.S. during the first half of the year than did rival GM, with that number coming in at 1,140,383. That, however, represents a 6.6% surge over the same period a year ago. In China, Ford saw record June sales of its passenger cars, as that metric soared a spectacular 28%, led by its Focus compact car — a model that, not coincidentally, is being built at a new plant in Chongqing. The record sales month in June is the third consecutive month of record sales in China for Ford.
The strong recent sales in both the U.S. and China markets have failed to jump-start Ford’s share price. The stock was down 14.5% through the first six months of the year, making it the worst-performing auto stock on my list.
One saving grace for Ford is that it does come with a dividend yield of 2.2%, so investors who want to climb into the cab of F shares for the long haul are getting that yield at a good price. Still, with the shares trading just above their 52-week low, and below the 50- and 200-day moving averages, the momentum isn’t with this automaker’s stock.
Some of the biggest gains in sales over the first half of this year have been seen in Japanese automakers. One chief reason why sales have been so much better is the utterly depressed sales numbers in the first half of 2011. That’s when the pernicious trifecta of a devastating earthquake/tsunami/nuclear disaster in the country crippled the Japanese auto industry’s supply lines, and caused major disruptions in the manufacturing process.
Although sales for Honda (NYSE:HMC) remain impressive through the first half, keep in mind that U.S. sales gains in 2012 cannot be fairly compared to 2011. Still, the company sold 700,982 vehicles through the first half of the year, a 15.4% gain compared to the prior year. While U.S. sales growth figures are solid, they pale in comparison to Honda’s China sales growth. The company’s two Chinese joint ventures, Guangqi Honda and Dongfeng Honda, sold a total of 64,652 vehicles in China during June, a remarkable 184.2% year-over-year increase. Through the first half of the year, Honda has sold 327,013 vehicles in China, a metric that translates into year-over-year growth of 120.5%.
The company’s share price was in the black, albeit a slight 2.5% gain through the first six months. That small gain does come with a 2.2% dividend yield. If Honda can continue recovering in both the U.S. and China markets, and if rising gasoline prices and a global recession force consumers into more fuel-efficient models of the kind generally offered by Honda, the shares could continue driving higher through the second half of the year.
By far, the company seeing the biggest U.S. sales gains in the first half of the year is automaker Toyota (NYSE:TM). The Japanese giant saw total U.S. vehicle sales of 1,046,096, which represents a 28.7% spike over last year. And though we have to keep in mind that Toyota also suffered big supply line disruptions from various disasters last year, the sales gains remain quite impressive on their own. The improved figures show that Toyota’s U.S. sales are back on track. Sales also are back on track in China.
Toyota’s sales gains in the country show that the appetite for Japanese-made vehicles is no fluke. The company, along with its two local joint-venture partners, saw June sales spike 18.6% to about 70,500 vehicles. For the first six months, the Japanese automaker sold roughly 442,500 vehicles, almost a quarter better than in 2011.
Investors also have demonstrated a healthy appetite for TM shares. The stock is up 14.7% through the first half of 2012. Along with that price appreciation, investors have collected a 1.2% dividend yield. The momentum is in Toyota’s garage here, and that makes this stock near the top of my list for stock drivers.
German auto giant Volkswagen AG (PINK:VLKAY) did extremely well in the first half of the year, selling 208,726 vehicles in the U.S. That’s a whopping 35.4% increase over the same period a year ago. The company’s Audi brand saw a 16.5% gain in U.S. sales, while newly acquired Porsche had a 5.8% sales boost.
The real fireworks for Volkswagen, however, took place in China. The flagship luxury brand, Audi, saw China sales grow by slightly more than 13% to 133,050 vehicles in June. For the first half of the year, worldwide sales for the brand rose 12.3% to 733,250 vehicles, a metric largely fueled by a 37.8% gain in its China volumes. This means that every fourth Audi sold in the world is delivered to a customer in China.
VW is doubling down on its China presence, recently announcing plans to build an assembly factory in the central Chinese city of Wuhan with its local joint venture partner, China FAW Group. The German manufacturer is increasing its footprint in the world’s biggest auto market, and that’s a development Wall Street likes. The company’s ADR was up 16.3% through the first half of 2012, and though it trades on the Pink Sheets, this foreign stock is definitely worth the international trip.
While sales figures in both the U.S. and China are key metrics for established automakers when it comes to investor appeal, there’s still nothing with more potential horsepower than a relatively new company with a cool product serving a wealthy demographic. That’s precisely what has made electric carmaker Tesla (NASDAQ:TSLA) a favorite on Wall Street through the first six months of 2012.
The stock saw a voltage surge of 14.2% year-over-year from January through June, and much of that has been due to excitement over its new Model S sedan. The Model S went on sale last month, and according to Tesla, the company had already received more than 10,000 pre-orders, with refundable $5,000 deposits for the vehicle. The company’s Model X SUV also has generated a power surge, with buyers already laying out $4,000 to have first dibs on the Model X.
Tesla shares seem poised to continue their rise, but the one caveat here is that the company recently received a downgrade from Wunderlich Securities, from buy to sell. Analyst Theodore O’Neill cut his rating and target price for the shares, citing Tesla’s likely reduction by about half of the initial 1,000 Model S units it originally planned to make this quarter. Although Tesla is sticking with full-year production estimates of 5,000 vehicles, any significant production delays could put a damper on revenue.
Still, Tesla shares are the growth story in the auto sector, and investors who are looking for alpha in the auto space need to think about electrifying their portfolios.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities. He does, however, own vehicles made by GM, Ford, Honda and Porsche
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