The auto industry was one of the hardest-hit industries during the pandemic due to global shutdowns in manufacturing. But you wouldn't know it by the 48.6% year-to-date gain in the First Trust NASDAQ Global Auto Index Fund (CARZ), which has a "Strong Buy" rating in our proprietary POWR Ratings system. You probably think that top electric vehicle (EV) companies have driven up the fund's price. But that's not the case. Tesla (TSLA) is the only major EV holding in the ETF with a 7.6% allocation. Overall, it's a pretty well-diversified fund.
The auto industry as a whole has shown resilience in its stock prices. The pandemic led to a massive drop in public transportation, while the millennial generation is leaving the city for greener pastures in the suburbs. Both of these issues have driven up the demand for vehicle ownership. In fact, the industry has delivered year-over-year growth in new-vehicle sales over the last few months across the United States, Europe, and China. The industry even received an improved outlook for 2021 from Fitch Ratings. With a vaccine expected in 2021, manufacturing is expected to pick up along with a rebounding economy.
That makes it incredibly enticing to consider automotive stocks for next year. While TSLA has one of the best-performing stocks over the past few months, and that momentum could continue, there are some concerns with the company. Noted The Big Short investor Michael Burry, sent out a tweet last week saying he is currently shorting TSLA stock as he believes that the company is overvalued. Even Tesla CEO Elon Musk is concerned. In a CNBC report, Musk emailed his employees and warned that "Investors are giving us a lot of credit for future profitability, but if, at any point, they conclude that's not going to happen, our stock will immediately get crushed like a souffle under a sledgehammer!"
That's why I suggest investors consider other automotive stocks such as Ford Motor Company (F), General Motors Company (GM), Harley-Davidson, Inc. (HOG), and Honda Motor Company, Ltd. (HMC).
Ford Motor Company (F)
While F doesn't have the hype or market cap as TSLA, the company's stock is up 129.2% since its March closing low of $4.01. The company recently reported a strong third quarter, with earnings per share of 65 cents, compared with the average analysts' estimate of 18 cents. Earnings before interest and taxes, excluding certain items, was $3.6 billion, compared to an estimate of $1.53 billion. Automotive revenue actually increased 2.3% year over year.
F's new CEO, Jim Farley, attributed these results to the company's focus on its commercial trucks and pickup trucks. F also sees strong demand for its new vehicles. While the company has benefited from the transition to cars during the pandemic, the vaccine should push its stock price even higher. As more people get back to work and travel, F should see a more robust demand for automobiles leading to strong results next year.
The company's play into EVs will also propel its stock higher. F has plans to launch an EV version of its popular F150 pickup truck in 2022. The EV version should sell well, particularly if oil prices pick up after a large percentage of the population is vaccinated. F is also looking to launch a hybrid-electric version of the F150 in the near-term. Other EVs for F include the Mustang Mach-E and an EV version of the Ford Transit cargo van that should do very well with increased e-commerce and food delivery.
On the traditional car side, Ford enthusiasts are excited over the recently announced Ford Bronco. F is rated a "Strong Buy" in our POWR Ratings system. It holds a grade of "A" in every POWR component, including its overall grade. The stock is also ranked #6 in the Auto & Vehicle Manufacturers industry.
General Motors Company (GM)
The top auto company in the "Big Three," GM has also performed well since its March low, up 163%. Similar to F, GM is looking towards EVs for the future. The company has upcoming launches of the GMC Hummer and Cadillac Lyriq. GM plans to spend $27 billion over the next five years on electric and autonomous vehicles. The plan is to launch 30 EVs globally by 2025, with more than two-thirds available in North America. All of the company's major brands will have models available.
GM's EV plan is contingent on its Ultium battery technology. The company expects its next-generation Ultium batteries to double the energy density of today's batteries at half the cost. In addition to EVs, GM has been working on driver assistance systems. According to Consumer Reports, GM's Super Cruise system was the best and outperformed TSLA by a wide margin, especially in areas such as keeping the driver engaged.
Aside from EVs, the company is generating growth from its hot-selling SUVs, the Chevrolet Silverado and Equinox. Nearly 70% of its sales are from SUVs and trucks. These vehicles have much higher margins than traditional small sedans. In fact, the prices for trucks and SUVs rival that of luxury sedans. The company also generates revenue from long-term financing and vehicle servicing.
GM is rated a "Strong Buy" in our POWR Ratings system. It holds a grade of "A" for Trade Grade, Buy & Hold Grade, Industry Rank, and a "B" for Peer Grade. The stock is also ranked #3 in the Auto & Vehicle Manufacturers industry.
Harley-Davidson, Inc. (HOG)
Unlike the other three stocks on this list, HOG doesn't manufacture or sell cars. The company is the most well-known motorcycle company in the world and is currently the leading manufacturer of heavyweight motorcycles, merchandise, parts, and accessories. While many view Harleys as the ride of choice for biker gangs, there are just as many office professionals and hobbyists that purchase from HOG.
While the company has seen slower sales due to younger generations buying trucks instead of bikes, CEO Jochen Zeitz has laid out a turnaround plan dubbed 'Rewire.' This is a five-year plan to overhaul its operating model and remake the company by focusing on its legacy brands. Management is also looking to revive its brand by collaborating with influencers for product launches.
In addition, HOG is now making new lines of electric motorcycles and sport bikes for urban and suburban commuters. The goal is to bring in a new generation of Harley enthusiasts. Due to these measures, the company is expected to grow revenue by 21.3% next year and earnings by 239.3%. The stock is up 161.7 % since its March low.
This has led to a rating of "Strong Buy" in our POWR Ratings system. It holds a grade of "A" in Trade Grade, Buy & Hold Grade, Industry Rank, and a "B" in Peer Grade. HOG is ranked #8 out of 34 stocks in the Auto & Vehicle Manufacturers industry.
Honda Motor Company, Ltd. (HMC)
The last company on my list was originally a motorcycle manufacturer, like HOG. Today, the company makes automobiles, motorcycles, and power products such as boat engines, generators, and lawnmowers. HMC posted strong financial results last month, outperforming both earnings and revenue estimates. Earnings were up 26% year over year.
The company has also boosted its fiscal 2021 guidance due to optimism for the industry next year. Similar to the other three companies, HMC is also looking to develop electric and self-driving cars. This bodes well for its future. In its Honda 2030 Vision, HMC Honda aims to generate 66% of its global auto sales from electric vehicles by 2030.
Its collaborations with GM and GAC Group should help expand its business and bolster its growth prospects. Its joint venture with GAC Group will allow the company to build electric battery cars and plug-in hybrid vehicles in China. The company has also taken initiatives to control costs and optimize production capacity, which will aid its liquidity.
The stock is rated a "Strong Buy" in our POWR Ratings system. It holds a grade of "A" in Trade Grade, Buy & Hold Grade, Industry Rank, and a "B" in Peer Grade. HMC is ranked #4 in the Auto & Vehicle Manufacturers industry.
Want More Great Investing Ideas?
9 “MUST OWN” Growth Stocks for 2021
Chart of the Day- See Christian Tharp’s Stocks Ready to Breakout
TSLA shares rose $0.84 (+0.13%) in after-hours trading Monday. Year-to-date, TSLA has gained 667.05%, versus a 16.32% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
The post The 4 Best Auto Stocks to Buy for 2021 (Not Named Tesla) appeared first on StockNews.com