4 Stocks to Buy as Auto Sales Set Annual Record

U.S. auto sales had hit the second consecutive annual high in 2016, aided by a surge in Dec 2016 sales that surpassed expectations. As the industry dished out more incentives to get Americans to acquire vehicles, sales touched record highs.

Upbeat consumer confidence also reinforced the auto industry’s outlook, which calls for investing in such spaces. Even dealers are planning for continued good times by upgrading their stores and other facilities.

December Auto Sales Strong

U.S. automakers saw better-than-expected sales last month and bolstered the outlook for an industry that has been a key engine for economic growth. U.S. auto sales in December came in at a seasonally adjusted pace of 18.43 million, the highest since Jul 2005 and well above estimates for about 17.7 million.

It was one of the strongest monthly performances in the industry’s history, fueled by discounts of around $3,542 per vehicle on an average, according to J.D. Power. This represented a discount of about 10% on the original asking price an incentive level not seen since the start of the financial crisis. Automakers are offering incentives to boost sales of passenger cars, including sedans. Needless to say, growth in demand for pricier pickups, sport-utility vehicles and crossover wagons has helped automakers book profits.

Solid Results from Automakers

General Motors Company (GM) reported U.S. sales growth of 10% in December from a year ago.  The company’s sales to retail customers increased more than 3%, which is more profitable compared to sales of fleet cars. The Detroit automaker sold 319,108 vehicles in the month. Its flagship brand, Chevrolet, posted an increase of 12.8% to 212,959 vehicles.

Ford Motor Company (F) also posted a sales hike of 0.3% in December to 239,854 units. Its retail sales rose 5% while sales of its most popular F-series pickup truck increased 2.7% to 87,512 units, the best sales month in 11 years.

Honda Motor Co Ltd (ADR) (HMC) announced a 6.4% sales hike last month, led by its CR-V SUV. Meanwhile, Fiat Chrysler Automobiles NV (FCAU) saw a sales decline of 10% after the company reduced its dependency on fleet sales.

Nevertheless, the performances were better than expected as analysts at Edmunds.com and Kelley Blue Book had projected a decline of 12.2% and 11.2%, respectively.

Auto Sales Set Annual Record

Heading into Dec 2016, the auto industry was on the brink of setting a new record after U.S. auto sales hit an all-time high of 17.47 million vehicles in 2015. Thanks to the robust December sales, a total of 17.55 million vehicles were sold in 2016, exceeding the prior year’s record, of which about 60% was classified as light trucks.

According to Mustafa Mohatarem, General Motors’ chief economist, “key economic indicators, especially consumer confidence, continue to reflect optimism about the U.S. economy, and strong customer demand continues to drive a very healthy U.S. auto industry” throughout last year. The Consumer Confidence Index increased from 109.4 in November to 113.7 in December, the highest since 2001, as per the Conference Board.

The gauge of consumer expectations for the six months to follow rose from 94.4 to 105.5. This is also the highest reading recorded in 13 years (read more: 5 Stocks to Buy on 15-Year High Consumer Confidence).

Buy These 4 Stocks Now

U.S. auto sales registered a record year in 2016 as General Motors topped forecasts and Ford Motor posted surprise gains. As the auto sector holds considerable promise, given the strong sales volumes, it will be prudent to invest in some solid stocks from sectors that are expected to perform well. Also, we have picked stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

The Goodyear Tire & Rubber Co (GT) develops, manufactures, markets, and distributes tires, and related products and services. The company has a Zacks Rank #2 and the Zacks Consensus Estimate for its current year earnings increased 0.5% over the last 60 days.

Over the last one year, Goodyear Tire & Rubber’s shares recorded a return of 5.44%, as compared with 4.6% provided by the Zacks categorized Rubber-Tires industry.

Modine Manufacturing Co. (MOD) manufactures and sells heat transfer equipment. The offerings include heat exchangers for cooling all types of engines, transmissions, auxiliary hydraulic equipment, air conditioning components used in cars and trucks. The company has a Zacks Rank #1 and the Zacks Consensus Estimate for its current year earnings increased 4.9% over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last one year, Modine Manufacturing’s shares recorded a whopping return of 104.87%, as compared with 10.5% provided by the Zacks categorized Automotive-Original-Equipment industry.

Fox Factory Holding Corp (FOXF) designs, engineers, manufactures, and markets ride dynamics products. The company offers front fork and rear suspension products for bikes, powered vehicles, off-road vehicles and trucks. The company has a Zacks Rank #2 and the Zacks Consensus Estimate for its current year earnings increased 0.8% over the last 60 days.

Over the last one year, Fox Factory’s shares recorded a staggering return of 79.08%, as compared with 10.6% provided by the Zacks categorized Automotive-Domestic industry.

Daimler AG (DDAIF) develops, produces, distributes, and sells passenger cars, vans, trucks, and buses worldwide including the U.S. The company has a Zacks Rank #2 and the Zacks Consensus Estimate for its current year earnings increased 1.4% in the last one month period.

In fact, last month, Daimler’s shares rose 8.27%, as compared with 1.61% provided by the Zacks categorized Automotive-Foreign industry.

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