This article was published in the September issue of Money magazine.
While car manufacturers in June reported their strongest monthly sales in nearly six years, the industry hasn't fully recovered. Analysts forecast that vehicle sales in the U.S. should reach 16 million by 2014, which is still below the pre-financial-crisis highs of more than 17 million.
Since the dark days, though -- when sales dipped to 10 million in 2009 -- car companies have cut costs and repaired their balance sheets, in some cases with an assist from bailouts and bankruptcies. They're now positioned to thrive even if sales never return to the glory days of a decade ago.
The big names are only part of the trend. "A rising tide of sales lifts all boats," says Efraim Levy, an analyst with S&P Capital IQ. "It helps the automakers, parts manufactures, and dealers."
Ford (F) and General Motors (GM) are in the best position to benefit from the U.S. resurgence, says Morningstar analyst David Whiston. Ford is succeeding with fuel-efficient cars; sales of its small vehicles are up 39%. And GM successfully redesigned several models and addressed some of its pension problems. Both trade at discounts to their overseas rivals.
You can hold both through First Trust Nasdaq Global Auto Index ETF (CARZ), which also owns Daimler (DDAIF), Toyota (TM), and Hyundai (HYMTF) shares. This global exposure may come in handy. Levy says markets in Asia are progressing and Europe could see a turnaround.
A funny thing happens when people start shopping for new cars. They often realize that used is a better alternative, says Brian Macauley, co-manager of the Hennessy Focus Fund, whose top holding is CarMax (KMX).
Used-car prices in general have fallen over the past year, but the average selling price for a preowned vehicle at CarMax is up 1%, while same-store sales climbed 17%. John Fox, director of research with Fenimore Asset Management, which owns CarMax stock, says the firm could boost profits further by increasing its store count. CarMax is expected to open 14 stores in the next 12 months and about 10 to 15 a year in the following two.
While car sales have picked up, the average age of a vehicle in the U.S. is still about 11 years. To keep those junkers on the road requires maintenance. That's why Forester Value owns shares of parts retailer AutoZone (AZO), says assistant fund manager Rebecca Scheuneman. AZO shares are also 30% cheaper than those of rival O'Reilly (ORLY).
Another parts play: Johnson Controls (JCI), the world's leading supplier of car batteries and a favorite pick for Levy. Profits for JCI, which is now making a push into lithium-ion batteries for electric cars, are accelerating 50% faster than the auto industry as a whole.
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Ford is in focus, and investors like what they see.
The American car manufacturer's stock rose 3% to a new 52-week high Tuesday, and is up 18% for the year.
Ford (F) recently told investors that it plans to roll out more vehicles by expanding its U.S. manufacturing capacity.
Analysts at JPMorgan (JPM) told investors Tuesday that they think the stock has room to run to $16 from a little over $15 now.
The automaker MOREMaureen Farrell - May 28, 2013 1:09 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.
Anyone who's seen "Thelma and Louise" knows that cars and cliffs don't tend to get along too well. But shares of Ford (F) are up nearly 15% since the broader market first started to slip in MOREPaul R. La Monica - Nov 27, 2012 12:57 PM ET
Ford and GM rallied Wednesday after both automakers topped third-quarter earnings forecasts, despite soaring losses in Europe.
Shares of Ford (F) climbed more than 5%, as the company's record profit of $2.3 billion in North America helped offset its $468 million loss in Europe, bringing losses in Europe so far this year to just over $1 billion.
Meanwhile, General Motors (GM), the largest U.S. automaker, reported a third-quarter profit that trounced analysts' estimates. Though MOREHibah Yousuf - Oct 31, 2012 1:12 PM ET
Stocks were flat Wednesday morning and one reason was the disappointing retail sales report for May. (Traders may have also been transfixed by JPMorgan Chase (JPM) CEO Jamie Dimon on Capitol Hill.) But if you dig behind the scary headline numbers, i.e. that sales were down for a second-straight month, you'd notice two key (and related) things. Gas prices are lower and auto sales are up.
The sharp decline in gas MOREPaul R. La Monica - Jun 13, 2012 1:15 PM ET
#StupidStock move of the day! $F deserves to be up because of Moody's upgrade. But $GM riding coattails on day like today? Seems odd to me.— Paul R. La Monica (@LaMonicaBuzz) May 23, 2012
Stocks are plunging today because of worries about Europe and the global economy. You wouldn't think that would be great news for car companies, arguably one of the most economically sensitive businesses out there. Yet, shares of MOREPaul R. La Monica - May 23, 2012 2:09 PM ET
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