The auto manufacturing industry, which suffered a major setback last year amid the COVID-19 pandemic, continues to be impacted by a global semiconductor chip shortage. While some fundamentally strong companies in the industry are expected to be able to stay afloat amid the unfavorable market condition, we think it is wise to avoid Ferrari (NYSE:RACE), and Workhorse (WKHS) because they seem overvalued at their current price levels. Adding to concerns, Wall Street analysts have recently downgraded their ratings. Read on.Auto manufacturing declined sharply last year thanks to COVID-19 pandemic-related restrictions and a decline in demand for vehicles. And even as major economies are now gradually reopening, the auto manufacturing industry continues to be impacted by a global semiconductor chip shortage. According to Statista, the global sales of automobiles are expected to fall to below 70 million units in 2021.
Investors’ pessimism regarding the auto manufacturing industry is evident in the First Trust NASDAQ Global Auto Index Fund’s (CARZ) 3.7% returns over the past three months versus the tech-heavy Nasdaq’s 6.4% gains. While some auto manufacturers may be able to weather these trying conditions, we think it is wise to avoid fundamentally weak stocks in this space that are trading at premiums to their peers.
Ferrari N.V. (RACE), and Workhorse Group Inc. (WKHS) look significantly overvalued at their current price levels. Also, Wall Street analysts have recently downgraded their ratings on these stocks. So, we think these two stocks are best avoided now.