4 Stocks To Buy On An Auto Sales Rebound

The auto sales report for March was a disappointment for several industry watchers who were expecting much stronger numbers. All of the three Detroit automakers posted sales increases, but reported numbers missed expectations leading to losses for stocks.

Market watchers now believe that auto sales have staged a strong rebound in April. Numbers due on Tuesday are likely to hit a record level, which makes it a good idea to pick stocks which will help you gain from the auto sales boom.

Strong Rebound Likely

According to automotive research company Kelley Blue Book, April sales for automotive companies hit the 1.51 million mark. This represents a year-over-year increase of 4%. It also means that this would be the best figures for April sales in terms of volumes. The earlier record stands at 1.5 million unit notched up during Apr 2005.

This would amount to a seasonally adjusted pace of 17.5 million units, in line with the record created last year. It would also mark a remarkable turnaround from the 16.5 million units sold in March, a major disappointment for market watchers. March numbers were also considerably lower than February’s figures of 17.5 million. Besides Kelley Blue Book numbers, other economists and market watchers are also predicting a rebound, with the consensus at 17.30 million, as per Bloomberg.

Factors Driving Car Sales Growth

U.S. automotive companies had a terrific 2015 with sales beating levels achieved nearly 15 years ago. Lower gasoline prices, favorable interest rates and an improving employment picture were the primary drivers for these gains. While gasoline prices have rebounded strongly since then, the two other factors are still firmly in place.

The Fed stayed away from raising rates last month and promised it would increase them only gradually. Only two hikes are slated for this year, instead of the four projected earlier. The economy has been adding 200,000 or more jobs every month for some time now. Figures for March were in keeping with this trend, even though the unemployment rate increased to 5% which is still quite favorable.

Additionally, average hourly earnings gained 0.3% in March to $25.39 per hour, in line with the consensus estimate. Average hourly earnings witnessed a 2.5% rise from the year ago

Our Choices

Most market watchers believe that April’s auto sales will rebound strongly. The sector has shown considerable strength for quite some time now and a number of factors indicate that this is likely to continue.

Adding these stocks to your portfolio is a good idea at this point. It would enable you to gain during what looks like another season of records for automotive stocks. But at the same time, it is important to pick winning choices.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.

Fiat Chrysler Automobiles (NYSE:FCAU) N.V. (NYSE:FCAU) operates as an international automotive company. It is engaged in designing, engineering, manufacturing, distributing and selling vehicles and components and production systems.

Fiat Chrysler has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 22.2% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 4.60, lower than the industry average of 8.49. Its earnings estimate for the current year has improved by 15.8% over the last 30 days.

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.

Superior Industries International has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 54.5% for the current year. Its earnings estimate for the current year has improved by 12.1% over the last 30 days.

Wabash National Corp. (NYSE:WNC) is one of the leading manufacturers of truck and tank trailers and other transportation related products in North America.

Wabash National has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 15.4% for the current year. It has a P/E (F1) of 8.28, which is lower than the industry average of 11.67. Its earnings estimate for the current year has improved by 12% over the last 30 days.

General Motors Company (NYSE:GM) has posted strong first quarter results and issued encouraging guidance for 2016. It is positioned to benefit from its investments in the U.S., directed toward strengthening its operations and new product launches.

General Motors has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 11.9% for the current year. It has a P/E (F1) of 5.66, which is lower than the industry average of 9.87. Its earnings estimate for the current year has improved by 3.2% over the last 30 days.