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 (F – Analyst Report) led the way with 20.2% growth, followed by sales increases of 12.8% for Honda (HMC – Analyst Report), 11.8% for Fiat Chrysler, 10.5% for Nissan (NSANY – Snapshot Report), and 4.1% for Toyota (TM – Analyst Report). On the other hand, General Motors (GM – Analyst Report) 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.
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 (CARZ – ETF report)
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.
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