An attractive sector — if you’re patient.
Changes are afoot in the automobile industry, as the transition to electric and driverless cars transforms a sector already under pressure from slowing U.S. car sales. That makes the sector more attractive now to value investors looking for cheaper entry prices, clear cash flow and dividends from stocks to hold long-term, says Renny Ponvert, CEO of Management CV. Meanwhile, automakers with solid strategies for competing in the electric and autonomous vehicles markets will come out on top, says ARK Investment Management analyst Tasha Keeney. Here are five standout automakers that patient investors may want to jump on for a long and potentially profitable ride.
Tesla (TSLA)
As the current leader in electric vehicle technology, Tesla should benefit from the shift to electric cars as they become cheaper than conventional automobiles with internal-combustion engines, Keeney says. The company’s first mass-produced affordable vehicle, the Model 3, is expected to come off the assembly line this week. With its Autopilot system, Tesla is also set up nicely for the move to fully autonomous vehicles. Still, John Engle, president of Almington Capital, believes Tesla’s stock is overvalued because competitors will eat into its market share eventually. But Keeney sees plenty of room for share price growth from autonomous ride sharing and the growing demand for electric vehicles.
Toyota Motor Corp. (TM)
The Japanese automaker also stands to gain from autonomous ride sharing. Although personal car ownership will decrease, self-driving taxi fleets should make transportation cheap in the future, says Keeney, who thinks companies will form geographic monopolies for this service in some markets. Toyota has a good shot at doing just that in Japan, as well as in certain African countries, she says, adding that the automaker’s Toyota Research Institute helps foster innovation. “We see them making more efforts to innovate than others,” she says.
General Motors Co. (GM)
An investor who can buy only one auto stock should look no further than GM, Engle says. The company is becoming a leader in electric cars and is making strides in self-driving technology. GM also has invested in the successful ride sharing company Lyft. The automaker, though, isn’t just a solid investment in the future of the auto industry; the company’s dividend makes GM a safe play now, Engle says. Keeney believes that of the traditional U.S. automakers GM is best positioned to benefit from the shift toward electric and autonomous vehicles.
Ford Motor Co. (F)
Ford is now one of the more efficient auto companies in the industry, Ponvert says. He likes how much control the Ford family has over the company because that gives investors more confidence that the dividend will remain secure. Ponvert also thinks the shares are cheap and that the company will outperform its competitors over time. While Ford is undervalued, Morningstar analyst David Whiston doesn’t see a near-term catalyst that would prompt shares to move higher, but for patient investors, the stock has potential as one to buy and hold.
Volkswagen
As it recovers from its emission scandal, the automaker has become a great buy-and-hold investment. The shares are cheap and have a mix of growth and value potential, says Brian Sterz, a portfolio manager with Miracle Mile Advisors. He likes the company’s exposure to international markets that could grow faster than the U.S. economy. “You’re going to probably see a tailwind from emerging markets and the European market,” Sterz says. Meanwhile, Ponvert expects changes to Volkswagen’s executive pay plan, announced this year, should boost the company’s performance in the long run.
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5 Automakers to Rev Up a Long-Term Investor’s Portfolio originally appeared on usnews.com
