Do you have the itch for a new set of wheels? If you do, you aren’t alone. Americans are buying new cars at the fastest pace in a decade. Sustained improvement in the labor market, low gasoline prices and easier credit availability are driving the boom in U.S. car sales.
For investors scouring the market for new opportunities, automotive-related stocks may be poised to benefit from this positive consumer trend.
New car sales have been on a tear. For September, motor vehicle sales surged to a seasonally adjusted annual rate of 18.2 million, up from 17.8 million in August. “It wasn’t too long ago that motor vehicle manufacturers were more than satisfied with monthly sales levels running in the seasonally adjusted annual rate range of 16 million. Now motor vehicle manufacturers are looking to set historical records every month,” according to Briefing.com, a Chicago-based independent live market analysis firm.
The impressive auto sales numbers are a “testament to the powerful force of pent-up demand,” says Ryan Sweet, managing director at Moody’s Analytics in suburban Philadelphia. “During and right after the recession, people drove their cars into the ground. Now, there is overall confidence in the job market, and interest rates are still very low. We are at the highest level of car sales since 2005.”
The auto sales trend bodes well for the economy. “Typically, consumers don’t buy cars if they are nervous about their jobs,” Sweet says. Also, the strong pace of light truck sales reflects the ongoing strength in the housing market. Light truck sales totaled 8.9 million in September, up from 8.5 million in August, 8.4 million in July and 7.8 million in June. The rising trend in truck sales corresponds to an increase in housing starts, Sweet says. “We are seeing homebuilders and contractors replacing their old light trucks with new ones,” he says.
Motor vehicle manufacturers posted year-over-year sales gains in September, led by Ford Motor Co., which saw year-over-year sales increase 23 percent. Automotive sector earnings are expected to increase 21.2 percent in the third quarter of 2015, placing it at the top of sectors covered by Zacks Investment Research, a Chicago-based independent equity research firm.
Tire and rubber stocks in the Standard & Poor’s 500 index are up 14.4 percent year to date versus a 1.3 percent decline in the overall S&P 500, according to S&P Capital IQ data.
Looking ahead, a bevy of factors are seen supporting continued strength in U.S. auto sales.
And the average age of vehicles is getting older, so they’ll require more maintenance. The average age of light vehicles in the U.S. is expected to increase from 11.4 years in 2013 to 11.7 years by 2019, according to forecasts by IHS, a business analysis firm based in Englewood, Colorado.
Bottom line? “Sales will remain very strong. There are very few weights on vehicle sales. It’s still rock-solid,” Sweet says.
Here’s a look at auto and auto-related stocks that could benefit from positive car sales trends.
The Goodyear Tire & Rubber Co. (ticker: GT) is the largest U.S. manufacturer of tires and one of the biggest worldwide. S&P Capital IQ gives GT stock a five-star ranking. “We see rising global vehicle production in 2015 as well as expanding global demand for tires. We expect increases in both original equipment tires and replacement tires,” says Efraim Levy, equity analyst at S&P Capital IQ. “Our fundamental 12-month outlook for the tires and rubber sub-industry is positive. We believe results in 2014 were helped by higher volume due to an improving U.S. economy as well as by a growing global economy.”
Cooper Tire & Rubber Co. (CTB) manufactures and markets tires domestically and worldwide. “The company is benefiting from its high-performance products, share repurchases and improving business operations,” according to Zacks Investment Research.
Ford Motor Co. (F) was the sales leader in the U.S. in September. All three reportable segments for Ford (cars, utilities and trucks) posted double-digit increases, ranging between 19 percent and 27 percent. “Ford’s most profitable vehicle is almost certainly its F-Series pickup trucks, which posted a 16.4 percent increase and a 28 percent retail channel increase,” says David Whiston, strategist at Chicago-based Morningstar, an independent investment research firm.
More from U.S. News
10 Reasons New Investors Should Enter the Market
8 Stocks to Buy for ‘Star Wars’ Fans
3 High-Powered Automotive Stocks to Buy Now originally appeared on usnews.com
