The U.S. is still facing high unemployment, a depressed housing market and a generally weak economy. On top of that, there are systemic risk fears for some investors due to the ongoing European debt crisis. In spite of those major issues and headwinds, auto sales are showing signs of real strength. A recent CNBC article summed up the situation for the auto industry and stated:
Analysts and executives expect 2012 U.S. auto sales to grow 4 percent to 9 percent, the third consecutive annual gain. The only reason automakers are not more bullish is the risk that the sovereign debt crisis in Europe may trigger a broader slowdown. All three U.S. automakers took market share in the United States for the first time in 23 years.
If the auto sector is seeing improved demand even in these difficult times, just imagine what auto stocks could be doing when unemployment is reduced and when the threat of a European debt crisis collapse is no longer hanging over consumers in both the U.S. and Europe. Auto stocks are one of the most economically sensitive, so when things pick up and consumer confidence rises, some auto stocks could easily double from current levels. Just imagine a future where the economy is strong and the stock market is in a bull market. Many investors will probably be wishing they had bought stocks like these:
Johnson Controls, Inc. (JCI) designs, manufactures and markets a variety of products including equipment and controls for heating, ventilating, air-conditioning, refrigeration, etc. The company also makes a wide range of automotive products such as electronic components, seating and many other interior parts. An economic upturn would greatly benefit this company since it has exposure to construction and autos. Johnson recently reported weaker-than-expected guidance due to the softening auto market in Europe. That caused the stock to drop from about $35 before earnings were released to about $31 after. Using any weakness to buy makes sense for long-term investors.
Here are some key points for JCI:
Current share price: $31.87
The 52-week range is $24.29 to $42.92
Earnings estimates for 2011: $2.77 per share
Earnings estimates for 2012: $3.38 per share
Annual dividend: 72 cents, which yields 2.3%
American Axle & Manufacturing (AXL) is a designer and manufacturer of chassis modules, driveline and drivetrain systems and other related components. This company has a fair amount of debt, but it appears to be manageable. General Motors (GM) is one of American Axle's top customers. Due to this, the company might see some impact from the weakening European economy. If the stock sells off on this or an earnings miss, that would be a solid buying opportunity. Once the economy rebounds this company could be earning much larger profits and also see a price-to-earnings multiple expansion.
Here are some key points for AXL:
Current share price: $12.24
The 52-week range is $6.77 to $15.82
Earnings estimates for 2011: $2.01 per share
Earnings estimates for 2012: $1.99 per share
Annual dividend: None
Goodyear Tire (GT) designs and manufactures tires for cars, trucks and even aircraft with brand names that include Goodyear, Dunlop and others. Goodyear also operates about 1,500 auto service centers. Some investors are concerned that pension liabilities will impact future results. However, the stock appears to have already priced in these issues as it only trades for about 6.5 times earnings. The pension issue looks manageable and the stock is deeply undervalued. If Goodyear is earning over $2 per share now, imagine how much earnings could grow in a robust economy. Goodyear shares should trade for $30 in a healthy economy.
Here are some key points for GT:
Current share price: $13.58
The 52-week range is $8.53 to $18.83
Earnings estimates for 2011: $2.11 per share
Earnings estimates for 2012: $2.46 per share
Annual dividend: none
Ford Motor Company (F) is one of the world's largest automakers. It sells under the Ford, Lincoln and Mercury brands. Ford is very well managed and respected since it is the only U.S. automaker that did not take bailout funds from the U.S. Government. Ford has made progress and the balance sheet is now strong enough for the company to have recently announced a dividend of 20 cents per share annually. Ford is introducing great new products, which offer both appealing design and fuel efficiency. Models like the re-designed Ford Focus, Fusion, and Explorer are selling well and that should continue to boost the bottom line for the next few years. If Ford shares stumble due to weakness from Europe, it's just a great long-term buying opportunity.
Here are some key points for F:
Current share price: $12.51
The 52-week range is $9.05 to $18.97
Earnings estimates for 2011: $1.84 per share
Earnings estimates for 2012: $1.56 per share
Annual dividend: 20 cents per share, which yields 1.6%
General Motors, Inc. is one of the largest automakers in the
world. GM did receive bailout funds from the U.S. Government and that seems to be impacting the image of this company for some investors and consumers. For investors there is a valid concern because the U.S. Government is still a major shareholder in the company and at some point it will likely sell its shares. That could put significant pressure on the stock. Even the announcement of a share sale by the government will probably result in a lower stock price. However, the stock makes sense for long-term investors as it is trading well below the 52-week high and with a price-to-earnings multiple of about 6. It also trades just barely above book value, which is $21.96. GM could see weak sales from Europe and if that sends the stock lower, it would be a great buying opportunity.
Here are some key points for GM:
Current share price: $24.92
The 52-week range is $19.00 to $39.95
Earnings estimates for 2011: $3.90 per share
Earnings estimates for 2012: $3.74 per share
Annual dividend: None
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.