July Auto Sales Surge: 4 Stock Picks - Analyst Blog
U.S. auto sales came ahead of expectations in July, fueled by demand for light trucks and sport-utility vehicles rather than fuel-efficient cars. Pent-up demand, easy credit and lower gasoline prices prompted demand for vehicles. Automakers are also benefitting from an improving economy. These positives outweighed sluggish consumer spending levels and weak wage growth.
Banking on the positives the auto sector is enjoying, it would be a prudent move to invest in certain top-ranked auto stocks. Before we cherry pick them, let’s look into other details.
SAAR Climbs In July
The seasonally adjusted annual sales rate (SAAR) climbed 3.2% from June to 17.6 million in July, its second highest tally in a decade. Meanwhile, domestic vehicle sales rose 5.2% to an annualized rate of 14.2 million in July, which exceeded the consensus estimate of 13.5 million.
The SAAR came above the 17 million mark in four out of the seven months of 2015, keeping the industry on track for its best year since 2000. On a 12-month rolling average basis, the SAAR is already at 16.8 million in June, a new recovery high. Sales had touched its nadir at 9 million in Feb 2009.
Automakers Sales Boosted by SUVs, Pickups
Light trucks set the pace in July, rising 11%, outselling cars for the 23rd successive month in July. Sales figures of major automakers were promising in July. General Motors GM recorded vehicle sales of 272,152 in July, up 6% year over year. Rise in sales of Chevrolet pickup, van and SUV helped the automaker post its best July sales since 2007. Ford Motor Co. F also posted vehicle sales of 222,731 in July, up 5% year over year.
Fiat Chrysler Automobiles N.V. FCAU recorded vehicle sales of 178,027 in July, up 6.2% year over year. The automaker registered its best July since 2005 due to continued demand for its Jeeps. July sales figure for Nissan Motor Co. Ltd. NSANY and Honda Motor Co., Ltd. HMC came in at 130,872 and 146,324, up 7.8% and 7.7% year over year, respectively. While Nissan’s sales of SUVs and trucks touched a new July record, Honda’s truck and SUV sales jumped 13% led by CR-V SUV and Odyssey minivan.
Drop in Gasoline Prices, Low Interest Environment
Sagging gasoline prices lifted the U.S. light vehicle deliveries. The national average fuel price is at $2.65 a gallon, less than almost $1 from year ago level. According to American Automobile Association, consumers paid the lowest price of gasoline in July since 2009. In fact, at some parts of the Midwest and South, prices of gasoline have gone down below $2 a gallon.
Automakers also enticed buyers with easy credits. They introduced zero-percent financing deals on sedans including Toyota Motor Corp.’s TM Camry, Ford’s Fusion and Nissan Motor’s Altima. Their move worked as Altima saw its July sales surge 27% year over year, a new record.
4 Prominent Picks as Broader Trend Looks Solid
Automakers are also reporting positive second-quarter earnings results. Both General Motors and Ford’s second quarter earnings surpassed the Zacks Consensus Estimate. As of Jul 29, 2015, total earnings for the auto sector are up 30.3% year over year, having an earnings beat ratio of 87.5%. The auto sector is also expected to have annual earnings growth of 25.3%, the highest compared to all other sectors.
Moreover, U.S. deliveries are expected to remain around 17 million in 2015, lifted by favorable financing terms and an improving labor market. Additionally, consumers are holding on to their cars for a lesser period, as compared to what they did during the recession. Higher consumer spending on big ticket items like new cars and trucks had helped second quarter GDP gain momentum.
Below we present four auto stocks set to benefit from these trends. We narrowed down our choices with the help of our style score system.
Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined with Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.
Ford Motor Co. manufactures cars, trucks and automotive components. Ford holds a Zacks Rank #2 (Buy) and has a Growth Style Score of ‘B.’
Ford has expected earnings growth of 41.9% for the current year. In the past two months, the Zacks Consensus Estimate for the current year was revised 3.8% higher.
PACCAR Inc. PCAR manufactures and provides customer support of high-quality trucks. PCAR holds a Zacks Rank #2 (Buy) and has a Growth Style Score of ‘B.’
PCAR has expected earnings growth of 22% for the current year. Over the past two months, the Zacks Consensus Estimate for the current year was revised 3.3% higher.
Toyota Motor Corporation produces and sells passenger cars and trucks globally including the U.S. TM holds a Zacks Rank #1 (Strong Buy) and has a Growth Style Score of ‘B.’
TM has expected earnings growth of 12.2% for the current year. In the past two months, the Zacks Consensus Estimate for the current year was revised 4% higher.
Nissan Motor Co. Ltd. manufactures motor vehicles and parts throughout the world. In the US, it predominantly operates in North America. NSANY holds a Zacks Rank #2 (Buy) and has a Growth Style Score of ‘B.’
NSANY has expected earnings growth of 9.7% for the current year. Over the past two months, the Zacks Consensus Estimate for the current year was revised 0.9% higher.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
FORD MOTOR CO (F): Free Stock Analysis Report
PACCAR INC (PCAR): Free Stock Analysis Report
HONDA MOTOR (HMC): Free Stock Analysis Report
TOYOTA MOTOR CP (TM): Free Stock Analysis Report
NISSAN ADR (NSANY): Free Stock Analysis Report
GENERAL MOTORS (GM): Free Stock Analysis Report
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