After a lackluster start to the year, the auto sector rebounded in February on regained vigor in the economy and fresh signs of increasing consumer confidence. This is especially true as sales climbed 6.9% year over year to an annualized 17.51 million units in February, as per Autodata Corp. This represents the best month for American auto sales since February 2000.
Five of the six major American and Japanese automakers reported solid sales growth last month. Ford Motor (NYSE:F) led the way with 20.2% growth, followed by sales increases of 12.8% for Honda (NYSE:HMC), 11.8% for Fiat Chrysler (NYSE:FCAU), 10.5% for Nissan (OTCPK:NSANY), and 4.1% for Toyota (NYSE:TM). On the other hand, General Motors (NYSE:GM) sales fell 1.5% year over year last month.
Robust growth was driven by deeper Presidents' Day discounts, cheap fuel, easy availability of credit at lower interest rates, and rising income. In addition, higher demand for sports utility vehicles, a plethora of new models, fuel-efficient and technologically packed vehicles, and the need to replace aging vehicles added to the strength. This trend is likely to continue in the coming months. With this, 2016 could be another record year for vehicle sales (read: Mixed Auto Earnings Put This Car ETF in Focus).
The solid data propelled the auto stocks higher and spread bullishness into the entire industry across the globe. Given the solid jump in auto sales, investors may want to take a closer look at the ETFs and stocks from this corner that they could ride on.
ETFs in Focus
First Trust NASDAQ Global Auto ETF (NASDAQ:CARZ)
This fund offers a pure play global exposure to 37 auto stocks by tracking the NASDAQ OMX Global Auto Index. It is a large-cap centric fund and is highly concentrated on the top four prime automakers - Ford, Toyota, General Motors and Honda - that combined to make up for 32.2% share. In terms of country exposure, Japan takes the top spot at 35.8% while the U.S. and Germany round off the next two spots with 23.8% and 18% share, respectively.
CARZ has a lower level of $39.6 million in AUM and trades in a small average daily trading volume of around 11,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank of 3 or 'Hold' rating with a High risk outlook.
Stocks in Focus
While all the auto stocks are in focus for the coming days, we have highlighted stocks that have the potential to move higher than its peers amid recovering sentiments. To accomplish this, we have used Zacks stock screener to spot two stocks that have a Zacks Style Score of 'A' for Growth, Value and Momentum each. These when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential with strong momentum, cheap price and robust growth (read: 3 Momentum Stocks & ETFs to Play).
Cooper Tire & Rubber Co. (NYSE:CTB)
Based in Findlay, Ohio, Cooper Tire is engaged in the manufacture and marketing of replacement tires worldwide. It is the fourth largest tire manufacturer in North America and the eleventh largest in the world.
The company saw solid earnings estimate revision of 37 cents for the current year over the past 30 days and is expected to grow at an annual rate of 4%. Further, the company delivered positive earnings surprises in the three of the past four quarters, with an average beat of 26.23%. The stock currently has a Zacks Rank #1.
Lear Corp. (NYSE:LEA)
Based in Southfield, Michigan, Lear Corporation is a global leader in designing, developing, engineering, manufacturing, assembling, and supplying automotive seating, electrical distribution systems, and related components primarily to automotive original equipment manufacturers worldwide (see: all the Consumer Discretionary ETFs here).
The stock saw positive earnings estimate revisions from $11.89 to $12.18 per share for 2016 over the past 30 days, representing a year-over-year increase of 12.21%. It delivered an average positive earnings surprise of 9.05% in the last four quarters. The stock has a Zacks Rank #2.
A slowly recovering economy and reviving consumer spending will continue to drive auto sales higher, making the above-mentioned ETF and stocks compelling choices for investors to play in the months ahead.