4 Automotive Stocks That Are Strong Buys Now

The auto sector holds promise right now, given the strong sales volumes and impressive first-quarter 2016 results. Low fuel costs, pent up demand, high incentives, favorable macroeconomic factors and attractive vehicle launches are boosting sales in the key auto markets of the U.S., China and Europe.

U.S. light-vehicle sales remain strong, with a 3.3% rise to 5.6 million units in the first four months of 2016. The increase is commendable, given that sales hit an all-time record in 2015. Total automobile sales in China also improved 6.1% during this period, while passenger car registrations in the European Union increased 8.5%.

Moreover, low fuel prices are resulting in higher miles driven, thereby increasing the demand for replacement parts. The high average age of cars is also boosting replacement demand for both cars and car parts.

While the auto industry has several reasons to be optimistic, a number of challenges remain. The negative impact of foreign currency translation remains a major headwind for the auto sector.

Safety recalls and related costs have also become a major issue for most automakers in recent years. Following a record number of recalls in the last two years, auto recalls are set to be high this year as well, thanks to defective Takata airbag inflators. The Volkswagen (DE:VOWG_p) AG emission scandal is also resulting in a large number of recalls.

Still, there are plenty of reasons to be optimistic on the broader auto industry for both the short and long term. According to IHS Automotive, global auto sales are expected to rise 2.7% to nearly 89.8 million units this year.

Auto Stocks to Buy Now

Considering the healthy fundamentals, it would be a good idea to invest in some top-ranked auto stocks that are expected to perform well. Let’s take a look at four auto stocks that sport a Zacks Rank #1 (Strong Buy), along with other favorable metrics.

Autoliv Inc. (NYSE:ALV) has a product portfolio consisting primarily of safety airbags, seat belts and steering wheels. The company has an attractive VGM Score of ‘B’ and expected earnings per share (EPS) growth rate of 8.96%. Its return on equity (ROE) is 17.4%, which surpasses the industry average of 16.4%.

Superior Industries International Inc. (NYSE:SUP) is one of the world’s largest designers and manufacturers of cast aluminum road wheels for the automotive industry. The company has a VGM Score of ‘A’ and ROE of 8.9%.

Michigan-based Unique Fabricating, Inc. (NYSE:UFAB) is a supplier of components in the automotive and industrial appliance market. The company has a VGM Score of ‘B’ and expected EPS growth rate of 21%. Its ROE of 16.7% exceeds the industry average.

Lear Corp. (NYSE:LEA) is a leading global supplier of automotive seating systems, electrical distribution systems and electronics. The company has a VGM Score of ‘A’ and expected EPS growth rate of 15.69%. Its ROE of 30.5% is significantly higher than the industry average.