I am a sucker for reading new books. But I will admit, I was a bit skeptical when I heard Fareed Zakaria was coming out with a new volume, Ten Lessons for a Post-Pandemic World, when we aren’t out of the woods as of yet. The novel coronavirus pandemic is an unprecedented event in the history of the world. And I guess that even though the crisis is not over, people are already starting to get used to the ‘new normal,’ including the markets. Unfortunately, car stocks are a casualty of our new reality.
And it makes sense. People are increasingly staying put and avoiding travel as much as possible. Understandably, investors are also staying away from automobile stocks. But it’s not all doom and gloom.
EVs are red hot at the moment, and there are no signs of the momentum stopping anytime soon. So, it’s not like every car company faces a tough time, but you definitely need to be very cautious when investing in the space.
That’s why we’ve identified three car stocks having a bit of trouble:
Car Stocks to Sell: Ford (F)
We start this list off with perhaps the most iconic car brand in the U.S., Ford. As recently as June, F stock was the most popular on the Robinhood investment platform.
It may seem surprising that a company with such a strong institutional past can face so many issues. However, there you have it. Ford is struggling big time now, and analysts believe that the situation will continue until at least 2023. That year is when revenues are expected to equal 2019 levels.
In the second quarter, the company’s total vehicle sales were down 33.3% from the previous year, to 433,869. Shutdowns and shelter-in-place restrictions, notwithstanding, there are also other issues the company is facing.
In an age where EVs are all the rage, Ford doesn’t have a product line that caters to that demand. Granted, it’s not the only automobile company struggling to evolve with the times, but its troubles are a bit more pronounced because of its dismal operating metrics.
Hopefully, newly minted CEO Jim Farley will be able to chart out a new path successfully, but F stock remains a risky proposition before that.
Thor Industries (THO)
Thor is an American manufacturer of recreational vehicles. Considering the nature of the crisis, I believe the company is the perfect candidate to grow exponentially. That’s because many vacationers are more inclined to use cars over RVs. And to be fair, the company has managed quite well during this crisis.
Thor Industries recently delivered excellent fourth-quarter fiscal 2020 results. It reported quarterly earnings of $2.14 per share, up from $1.70 per share in 2019, and beating analyst estimates of $1.38. Revenues came in at $2.32 billion, also up from the year-ago figure of $2.31 billion.
But I am a bit wary of the company’s valuation. Over the last six months, THO stock has increased by 51.81%. This writing shares are trading at $87 a pop and 21.6x trailing 12 months price-to-earnings. The valuation multiples are not consistent with the company’s fundamentals. I believe the recovery is already priced in, making THO stock expensive at this stage.
Fiat Chrysler (FCAU)
Another iconic name on the list, Italian/American multinational corporation Fiat Chrysler is also struggling like the rest of the auto industry in making sense of the current climate.
The company recently reported third-quarter sales of 507,351 vehicles, a year-on-year decline of 10%. Still, sales finished 38% higher than the Q2 results as FCA sold 140,265 additional vehicles.
But then why should FCAU stock be on this list? Sales are rebounding, and the company just made a record $2.671 billion in pre-tax earnings, shrugging off the pandemic induced blues. To be honest, the issues with Fiat are more systemic, namely autonomous cars and EVs.
As I’ve already mentioned in this article, EVs and hybrids are a hot button issue at the moment. Governments and state administrations around the world are giving weight to the carbon footprint gas-guzzling cars are creating. Paris has pledged to ban diesel engines by 2025 and phase out all combustion-engine cars by 2030. California Gov. Gavin Newsom banned new gas-powered cars by 2035.
The writing is on the wall; it’s a shame that Fiat didn’t read it. In comparison to its peers, who are basing their long-term roadmaps around EVs, the company has been hesitant to pursue this area.
Meanwhile, Fiat’s recent mega-merger with PSA Group (OTCPK:PEUGF) will help the company chart a winning path in autonomous vehicles. But in all likelihood, the company will have to play catch up for several years to the Teslas (NASDAQ:TSLA) of the world.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
