New Vehicle & Auto Parts Sales Signal Advancement: 4 Gainers

Zacks Equity Research
·6-min read

U.S. auto manufacturers did make a comeback in recent times after being hit by the COVID-19 pandemic in early-2020. Even though auto manufacturers haven’t recouped their losses completely in the third quarter, the sales figures suggest that their business is gradually improving. As per S&P Global Market Intelligence analysis, non-seasonally adjusted vehicle sales for the third quarter has declined 9.2% year over year. However, the dip is relatively less compared to a 33.3% decline witnessed in the second quarter. The analysis also pointed out that sales of SUVs and trucks, in particular, picked up in the third quarter.

Having said that, J.D. Power Automotive and LMC Automotive jointly said last month that they expect an improvement in auto sales. September’s new-vehicle retail sales are projected at 1.16 million units, suggesting a 3.4% increase year over year — the first monthly gain since February. The forecast also mentioned that trucks and SUVs have most likely accounted for 76.3% of new-vehicle retail sales, which is the highest-ever for the month of September. The average new-vehicle transaction price is also expected to have reached $35,655 in September, beating the record of $35,420 set in August.

Lower interest rates enthused buyers into opting for new vehicles as the Fed kept its benchmark interest rate at a significantly low 0% to 0.25% rate. Coupled with this, consumer confidence saw a comeback in September after the decline witnessed in August. The Conference Board reported that the index stood at 101.8, up from 86.3 in August. This was aided by a more favorable view of current business conditions and short-term outlook which, in turn, surely led to an uptick in spending.

Moreover, the strong vehicle sales numbers can be substantiated by comments from the Federal Reserve Vice Chair Richard Clarida at a webcast meeting of the Institute of International Finance. He stated that “the data show us that with rates low, credit available, and incomes supported by fiscal transfers, the answer is—at least so far—that they do build houses, buy cars, and order equipment and software.” Along with this, the pandemic has compelled people to opt for personal transportation, and not rentals and public transport, which again may have led to an increase in the demand for cars. Elaine Buckberg, Chief Economist at General Motors, also mentioned in a press release that the savings, which people have generated due to canceled plans are now being utilized in purchasing new vehicles. The press release also mentioned that city residents are opting for new vehicles in order to move to suburbs or escape the city during weekends, another reason behind the improvement in sales. Separately, increase in home construction activities have also helped in bolstering the demand for pick-up trucks. For instance, privately owned housing starts surged to 1,415,000 in September from the revised August estimate of 1,388,000, as per the data jointly released by the Census Bureau and the Department of Housing and Urban Development.

Meanwhile, the advance estimates of the U.S. Retail and Food Services, released by the Commerce Department recently showed that retail sales at motor vehicle and part dealers too jumped 7.5% year over year for the July-September quarter as stores and dealerships started to open up following the lockdown witnessed in the prior months.

4 Stocks to Buy

Vehicle sales have, no doubt, started to show signs of improvement lately, with consumers willing to purchase the big-ticket item, thanks to a low interest rate environment and an improved economic outlook. At the same time, there has been a significant rise in sales of auto parts in the third  quarter, compared to the drastic lows of the second quarter. Hence, investing in both auto manufacturers and auto parts retailers for the time being won’t be a bad proposition. Therefore, we have selected four such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shyft Group, Inc. SHYF, through its subsidiary Spartan Motors, Inc., manufactures and assembles specialty vehicles for both commercial and recreational vehicle industries in the United States. The company, currently, has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 0.8% over the past 60 days. The company's expected earnings growth rate for the next year is 24.2%. Its shares gained 14.6% in the July-September quarter., Inc. PRTS is an online provider of aftermarket auto parts and accessories like collision parts, engine parts, etc. in the United States. The company, currently, has a Zacks Rank #2. The Zacks Consensus Estimate for its next-year earnings has increased more than 100% over the past 90 days. The company’s expected earnings growth rate for the next quarter is 94.3%. Its shares gained 23.7% in the July-September quarter.

Ford Motor Company F designs, manufactures, markets and services Ford and Lincoln vehicles in the United States, operating through three segments, namely, Automotive, Mobility and Ford Credit. The company, currently, has a Zacks Rank #1. The Zacks Consensus Estimate for its next year earnings has increased 14.5% over the past 60 days. The company’s expected earnings growth rate for the next 5 years is 5.3%. Its shares gained 11.4% in the July-September quarter.

LKQ Corporation LKQ distributes replacements parts, components and systems for maintenance and repairing of vehicles in the United States. The company, currently, has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased 4.5% over the past 60 days. The company’s expected earnings growth rate for the next year is 18.5%. Its shares gained 5.8% in the July-September quarter.

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