In August, an uptick in auto sales had Wall Street buzzing that then was the time to buy American automakers. However, it takes more than one data point to change my investing strategy, so at the time I advised that we held off on buying any automakers until we got further indication that this was a stable trend rather than a blip on the radar. Now that a month has passed and we have a fresh new batch of auto sales data, let’s revisit the American car market and see whether my advice still holds true or if this truly is the sign of better times to come for the Big Three.
Overall, U.S. auto sales advanced 10.7% — this is still one of the fastest monthly sales paces in three years. Consumer confidence is up, interest rates are down and credit is flowing more easily — so some analysts say that auto sales could reach the highest level since early 2008.
But not all car makers are performing up to snuff. In fact, two of the Big Three — Ford and General Motors — weren’t able to maintain the record sales pace reached last month. And if you dig back to the past six months’ worth of sales data, you’d see that these two players have been under performing the U.S. industry average for quite some time.
Last month, I highlighted both Ford (NYSE:F)and GM (NYSE:GM) as D-rated sells, and the same still holds true. In fact, this quarter, analysts expect General Motors’ sales to drop 2.5% and earnings to plunge 41.7%—Ford doesn’t fare much better with 0.2% sales growth and a 17.6% drop in profits.
As for competitor Chrysler, you’ll see that it has been able to pull off double-digit sales growth under Italian automaker Fiat (PINK:FIATY) — in September, it posted the strongest sales in nearly five years. However, due to Fiat’s partial ownership of Chrysler, it is now privately-held.
To sum it up, while the overall strength of the U.S. auto market is great news for the larger economic recovery, there are two things to keep in mind. First, it is clear that not all automakers—most notably, Ford and GM—are in the clear. Also, just one look at the past few months’ of data shows that there are still quite a lot of month-to-month fluctuations.
So while I’m certainly keeping auto sales on my radar, I’m actually more interested with profit opportunities tied to the housing market—which is clearly on the mend. In fact, on Tuesday we saw that August U.S. home prices jumped to a six-year high, which is tremendous news for the housing market. In the coming weeks I’ll continue to monitor trends on this front and see which companies may require a closer look.