Many auto sector stocks have been hit hard recently, and that has created some potential buying opportunities. Much of the weakness in this sector appears to be related to the significant rise in oil prices. While I think things may get worse in the Middle East before they get better, I believe oil will eventually return below $100 per barrel. A drop in oil prices could give these auto sector stocks a strong relief rally.
These shares have low PE ratios, strong balance sheets and appear oversold. In particular, I am looking at the Relative Strength Index (RSI) levels which can indicate oversold conditions. Stocks with an RSI rating around 30 can signal that the shares are oversold and due for a rebound.
Here are the five companies, which all have RSI levels in the 30's or below (except for AXL and TRW):
General Motors (GM) shares are trading at $31.60. These shares have a relative strength index of about 25 which indicates the shares are oversold. GM is a leading automaker. They reported earnings which disappointed the market and shares dropped from about $36 before earnings, to current levels of around $31.60. The 50 day moving average is $36.31. Earnings estimates for GM are just over $4 per share in 2011 and even more for 2012 so the PE ratio is only about 8.
Ford Motor Co. (F) shares are trading at $14.03. These shares have a relative strength index of about 27 which indicates the shares are oversold. Ford is a leading automaker. The 50 day moving average is about $16.61 and the 200 day moving average is about $14.03, so these shares are trading at strong support levels. Ford shares hit a 52 week high of $18.97 earlier this year. Earnings estimates for F are $1.91 per share in 2011 and even more for 2012 which puts the PE ratio at about 7.
American Axle (AXL) shares are trading at $13.06. These shares have a relative strength index of about 40 which indicates the shares are nearing oversold levels. AXL is a leading manufacturer of automotive components. The 50 day moving average is about $14.19 and the 200 day moving average is about $10.63. Earnings estimates for AXL are $1.67 per share in 2011. The PE ratio is about 7.
Magna International Inc. (MGA) shares are trading at $50.14. These shares have a relative strength index of about 35 which indicates the shares are oversold. MGA is a major auto parts manufacturer. The 50 day moving average is about $56 and the 200 day moving average is $44.45. Earnings estimates for MGA are about $4.77 per share in 2011 which gives the shares a PE ratio around 10.
TRW Automotive (TRW) shares are trading at $58. The relative strength index is about 50. TRW is a major auto parts maker. The 50 day moving average is about $57.73 and the 200 day moving average is $43.62. Earnings estimates for TRW are about $6.52 per share in 2011 which gives the shares a PE ratio around 9.
These stocks are likely to react to major moves in the price of oil. Since it's unknown when the Middle East tensions will improve, it makes sense to ease into these names over time. I think any additional pullback in some of these stocks represents a solid buying opportunity, as they could rebound sharply from these oversold levels.
The data is sourced from Yahoo Finance. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I am long F.