Ford And Sirius: Profit From Strong Automotive Trend

Includes: F, HMC, LMCA, SIRI, TM
by: Investanomics

The auto industry is starting to show signs of life once again. The auto industry recently posted some of the strongest sales gains in three years. Some of the biggest winners were US automakers; Ford (NYSE:F) saw November sales gain 13.3% to 166,865 vehicles. Chrysler was a big winner as well with November sales gaining 45% to 107,172 vehicles. The Big 3 were able to gain market share from Toyota (NYSE:TM) and Honda (NYSE:HMC) in the key US market. Both companies had to deal with disasters that plagued operations and caused production delays.

Consumer confidence is an important indicator when monitoring the auto industry sales. Consumers usually hold back on big purchases when consumer confidence is low. The Consumer Confidence Index in November surged to 56, a nice increase when compared to previous numbers. The auto industry sales should continue to increase; consumers held off on big purchases during the economic turmoil and are now looking to buy new vehicles. The Conference Board data shows that the number of consumers looking to purchase a vehicle in the next six months increased to the highest number since April.

This trend presents an opportunity for investors to profit from a recovery in the auto industry. I expect these two companies to benefit from this great trend.

Ford - I'm bullish on Ford and will look to buy pullbacks. I like how Ford is adapting to consumer demands and are taking risks to increase market share in other categories. The company is experimenting with new designs which should help sales. A few years ago, 70% of Ford's retail sales were truck and truck-based utility sales. In 2011, almost 2/3 of Ford's retail sales are now cars and car-based utilities, and only about 1/3 of the company's retail sales come from trucks and truck-based utility vehicles.

In the third quarter Ford earned a pretax operating profit of $1.9 billion, with the company's automotive and financial services sectors each profitable. Net income totaled $1.6 billion and automotive-related cash flow was $400 million. Ford also completed a 4 year contract with UAW which should help the company compete better.

Sirius (NASDAQ:SIRI) - Sirius is in an interesting situation that would allow investors to benefit from several factors. The company's business is closely tied to auto sales and should benefit from this automotive trend. The company recently increased its distribution by expanding into the used car market. I expect this new market to be a big growth driver for the company going forward.

I also like the fact that Liberty Media (LCAPA) is looking to increase its stake in Sirius. I view an investment by Liberty Media as a vote of confidence in the company. There are rumors that Liberty Media may look into buying out Sirius, this of course will give investors a nice premium if a deal were to be completed.

So far this year, Sirius has added over 1.16 million net new subscribers; this is a 6% increase compared to last year. Sirius confirmed its fourth quarter subscriber projections of 440,000 new net subscribers; this would be an increase of 34% when compared to the same quarter in 2010. I'm bullish on Sirius and view pullbacks as opportunities to buy.

Disclosure: I am long SIRI.

Additional disclosure: I have no position in Ford but may initiate a long position in the next 72 hours.