Driving for profit.
Given the proliferation of internet information, it’s easier than ever to shop for new or used cars. But scoping car companies to park in the investment garage? In large part, no straight-line correlation exists between vehicles rolling off the assembly line and profits bankrolling your bottom line. “Cyclical stocks such as automakers are cheap,” says Charles Sizemore, a portfolio manager on Covestor and founder of Sizemore Capital Management in Dallas. Compared to other sectors, “We have a situation in which safe stocks have become unsafe due to excessive valuations and risky cyclical stocks are actually the safer bet.”
Tesla Motors (ticker: TSLA): Dangerous curves ahead.
Tesla’s hybrids are slick, and CEO Elon Musk (besides having a name worthy of a race car driver) boasts a gift as a slick car salesman, so to speak. “Tesla has said they plan to deliver 80,000 to 90,000 cars this year,” says Gary Tsaris, clinical assistant professor at the University of Pittsburgh’s Katz Graduate School of Business. “The company lost approximately $300 million in the first quarter of 2016, fueling the idea they’re losing money on every car sold.” Tesla hasn’t posted a profit since going public in 2010.
Ford Motor Co. (F): Hitting the skids.
Ford got clobbered last month after its earnings report fell short of expectations. And on July 27, Ford execs uttered the word “incentives.” While a lure for auto buyers, it turned F into a failing share seller. Ford stock tanked more than 8 percent and currently sells just shy of $13. For the buy-and-hold crowd, that’s still up 17 percent over the last five years — but also down a quarter from two years ago. “Sales have been robust and profits have followed,” Sizemore says. “Yet Wall Street seems unduly pessimistic.”
General Motors Co. (GM): Humming on a new engine.
When Ford sneezed, its fellow Detroit automaker caught the sniffles; GM dropped 3.25 percent but has since recovered half that loss. Steady domestic sales have helped GM, with second-quarter profits up 157 percent compared to 2015. Clearly, the Troubled Assets Relief Program bailout not only saved GM from collapsing, but also helped it return to strength. Much potential lies in China, where GM and its related ventures sold 1.81 million vehicles in the first half of 2016. That’s a record for GM, and marks an increase of 5.3 percent.
Fiat Chrysler Automobiles (FCAU): Looking for the on-ramp.
Fiat Chrysler dropped 35 percent on Jan. 4, but not for reasons observers might think. On that date, FCAU completed the spinoff of its 90 percent stake in Ferrari (RACE), and investors received one share of Ferrari for every 10 Fiat Chrysler shares they held. RACE stock has since held steady at $45 per share, but FCAU stock took a wrong turn. Off close to 30 percent, it trades at about $6.50. But things could accelerate: second-quarter results in late July beat the Street.
Volkswagen: Repairing from a crash.
September’s sickening news that Volkswagen cheated for years on U.S. air pollution tests caused a wipeout — the stock fell 38 percent in less than a week. After ousting CEO Martin Winterkorn, VW (which trades in the U.S. in over-the-counter markets as VLKAY) has climbed 18 percent, trading at more than $28.70. Unsettling as the scandal is, Volkswagen is one of the world’s top-selling automakers. And it’s more than just the Beetle and Jetta: The German company owns some ultra-luxury brands, including Bentley, Bugatti and Lamborghini.
Toyota Motor Corp. (TM): Due for a tuneup.
August 2011 through 2013 was a joyous checkered flag for Toyota, as stock in Japan’s top automaker peeled out some 73 percent. But it’s since been a checkered 12 months, with shares down 16 percent to $112. Cost reductions helped the bottom line, but Toyota is dealing with a stronger yen, which has led to slipping sales and weak earnings guidance for the 2017 fiscal year. What next? A possible rebound, as foreign carmakers started 2016 among the top 5 percent of industry rankings by Zacks Industry Research.
More from U.S. News
11 Ways President Trump’s Tax Plan Could Affect Americans
The 9 Best Investors of All Time
Car Companies and the Race to Profits originally appeared on usnews.com
