Steer Your Portfolio in the Right Direction

This article originally appeared on Traders Reserve.

The electricity in the air at last week’s Detroit Auto Show wasn’t coming solely from those high-profile, plug-in vehicles green energy advocates are so enamored with. Rather, the electric atmosphere at this year’s show was all about the return to big profitability for the auto industry. In fact, the sector really picked up steam in December, as U.S. auto sales rose 11%, their highest monthly increase in 16 months. For the full year, U.S. sales also rose 11% over their anemic 2009 performance.

Those numbers, along with an improving economy, improving stock market and upbeat consumer sentiment, has caused the major automakers to predict strong sales in 2011. And the prospect of a more prosperous year for the industry hasn’t been lost on Wall Street. There have been some nice gains in many auto stocks of late, and that’s a trend investors can capitalize on.

Here are the auto stocks that should be at the top of investors’ buy list:

Ford Motor

Talk about buzz, there’s no car company coming close to creating the kind of optimism Ford Motor (NYSE: F) has generated of late. The company made a big splash with an all-electric version of its popular Focus model, but more importantly, Ford recently announced that it plans to hire 7,000 new workers this year. Expansion of the workforce is a very bullish development for Ford stock, as are the consistent string of outstanding quarters the company has posted over the past year. Oh, and don’t forget that last year Ford actually overtook Toyota (NYSE: TM) as the No. 2 U.S. automaker. All this makes Ford a great place to park some of your portfolio dollars.

Tesla Motors

Ultra-hip boutique electric vehicle maker Tesla Motors (NASDAQ: TSLA), which went public in July of last year, was the first new U.S. automaker to go public since Ford did it back in 1956. Tesla recently announced that they had sold more than 1,500 vehicles since their first sale in 2008, and while that’s not a lot of units, it is a milestone that many thought Tesla would never reach.

Tesla’s story isn’t about earnings at this stage. It is, however, about perception and interest in an electrified future for the automobile. If that interest ramps up in 2011, look for TSLA shares to get a nice spark.

BorgWarner

Auto components maker BorgWarner (NYSE: BWA) is the leading manufacturer of energy efficient engine parts. This week, the company said per-share earnings may increase as much as 40% in 2011 as its sales growth outpaces auto production.

BorgWarner also said it expects an annual revenue increase of as much as 20%. The company is benefiting from the growing trend toward increased emissions restrictions around the globe. Why? Well, because its turbocharger products help an engine be more efficient, and hence more fuel efficient. If this trend continues in 2011, look for this stock to turbo charge your portfolio.

Magna International

Another auto parts firm coming out with a strong forecast for 2011 is Canada-based Magna International (NYSE: MGA). Last week, the auto supplier announced that it expects 2011 sales to grow between 9% and 13% over the previous year. Magna said the upbeat sales forecast was based on full-year light vehicle production volume of 26.2 million units across North America and western Europe.

It also said that it expects total production sales to rise by around $3 billion between 2011 and 2013. It’s this kind of upbeat forecast that bodes well for the long-term future of a stock, and that’s why MGA shares deserve a seat on your auto stock watch list.

Tata Motors

If you want a really booming area for auto sales, then you need to look overseas. Specifically, you need to look toward India. That country’s car sales surged 31% in 2010, as rising disposable income has combined quite favorably with automakers that have targeted the Indian market. One of the best automakers serving the Indian consumer is Tata Motors Ltd. (NYSE: TTM).

Last week, the company reported an increase in global sales of 21% in December, attributing that strong surge to robust demand for commercial vehicles. But the company is more than just a commercial vehicle maker. Tata also owns luxury brands Jaguar and Land Rover — and this mix of commercial vehicles and luxury brands might just add up to a great mix in your auto-centric portfolio.