GM Inside News Forum banner
1 - 13 of 13 Posts

·
Registered
Joined
·
3,557 Posts
Discussion Starter · #1 ·
Steer Clear of Automotive Stocks
Wednesday November 5, 1:00 am ET
By Paul Raman

It appears as if the auto and auto parts industry is in need of a tune-up, if not a complete overhaul. We are joined by Zacks senior equities analyst Paul Raman, CFA for his view on what investors can expect from this beleaguered industry going forward.
What's your general take on companies under coverage in the Automotive sector? Oversold? Still seeking a bottom?

Our outlook on the Auto and Auto Parts industry is negative. The industry is very concentrated, with the top 8 global auto companies having more than 90% of global revenues, and the top 50 global auto parts companies having 80% of global revenues (the top 4 U.S. tire producers have 75% of the U.S. market).

Conversely, the auto retailers are fragmented, with the top 100 in the U.S. being only 15% of the U.S. market, with half of profits coming from parts and service and inventory management being important. Key drivers for the auto parts retailers are inventory management and an increase in the age of vehicles on the road (which increases the need for service).

Would your advice be to short auto stocks, or perhaps sell off current auto holdings?

Investors should under-weight auto stocks for the time being. We should see earnings that are below expectations. Costs are much higher than seen in other countries, and this is creating a loss of market share in the U.S. The presence of unions has led to costs being much higher than seen in other countries.

Raw material prices are elevated and can be up to 70% of the cost of a car. Demand for autos varies between (5)% and 5%. We expect growth to be (5)% due to a weak economy and weakening real estate market.

Do the economic difficulties in the U.S. play a big part in this?

Demand is certainly hurt by weakening employment. The recent credit crunch is crippling to auto sales, and this has a trickle-down effect throughout the industry. Furthermore, high gas prices have resulted in a slowdown of SUV sales, which are 55% of sales (cars are 45%).

We are among the leading bears on the auto industry, with 9 Sells, and we have no plans of going back into the cave any time soon.

Are there any bright spots on the horizon?

There is a focus on automation and simplifying product lines to lower costs and benefit from economies of scale. The average car now needs only 15-25 man-hours per vehicle, and this drops 2% annually.

Imports have been more competitive due to high gas prices, as they tend to have better gas mileage. Hybrid/alternative cars represent a source of growth in the future should gas prices remain high. Market share gains by hybrids/alternatives will be slow, however, and they are now only 4% of cars on the road.

What are the specific names you have Sells on?

AutoNation is rated a Sell due to high exposure to weak California and Florida markets. American Axle and Manufacturing has 70% exposure to GM and very high SUV exposure.

Ford (NYSE: F - News) has very high SUV exposure, plus high retirement/medical legacy costs and high launch costs. General Motors (NYSE: GM - News) has all of the same plus poor resale values for its vehicles. Lear is negatively impacted by high SUV exposure.

CarMax (NYSE: KMX - News) is hurt by weak auto sales and a slowdown in growth. Tenneco and TRW Automotive have high Big-Three (GM, Ford and Chrysler) exposure. Visteon has 40% Ford exposure and has high financial leverage.

Full text here: http://biz.yahoo.com/zacks/081105/zacks9092000000commentary.html?.v=1
 

·
Registered
Joined
·
44,432 Posts
What really isn't mentioned in this is that the market expects the automakers to continue to do poorly, so that expectation is already baked into the stock price.
Hence, when Ford and GM announced their crappy sales, their stock price didn't budge.

The market is just waiting for a blip upwards... and these stock prices will rocket.

The trick is figuring out when exactly that will happen.

Personally, I've got an itchy trigger finger for Ford stock.
 

·
Registered
Joined
·
189 Posts
What really isn't mentioned in this is that the market expects the automakers to continue to do poorly, so that expectation is already baked into the stock price.
Hence, when Ford and GM announced their crappy sales, their stock price didn't budge.

The market is just waiting for a blip upwards... and these stock prices will rocket.

The trick is figuring out when exactly that will happen.

Personally, I've got an itchy trigger finger for Ford stock.

Yes, you are correct. It appears Ford's gamble is starting to pay off. I would never ever buy a Ford but the Mazdaspeed 6 is one car I would love to have.
 

·
Registered
Joined
·
2,032 Posts
What really isn't mentioned in this is that the market expects the automakers to continue to do poorly, so that expectation is already baked into the stock price.
Hence, when Ford and GM announced their crappy sales, their stock price didn't budge.

The market is just waiting for a blip upwards... and these stock prices will rocket.

The trick is figuring out when exactly that will happen.

Personally, I've got an itchy trigger finger for Ford stock.
I've already lost 4k on GM stock. A word to the wise, don't buy any automotive
stock, it's completely to risky. You could very well lose your shirt. There are plenty
of high quality stocks like Apple that has a huge amount of cash and can weather
bad times, and still come out smelling like a rose. Can you say the same about
GM or Ford?
 

·
Banned
Joined
·
2,364 Posts
buy Ford, it's the play. if you've been following, my predictions have been pretty darn good.
 

·
Registered
Joined
·
7,418 Posts
I bought 200 shares of GM at 6.70 and 235 shares of Ford at 2.30 within the past couple of weeks. Everything is pretty painful to look at right now.
 

·
Registered
Joined
·
1,818 Posts
Don't invest what you can't lose. Nothing wrong with dropping a few hundred bucks if you have it on GM or Ford right now. You can get a bunch of stock cheap at the moment. If it goes up, you're in great shape. If not, you aren't out much.
 

·
Registered
Joined
·
335 Posts
I know I've wanted to buy some stock in GM and maybe Ford, but I don't really have much to throw around. I've always been of the opinion to buy stocks in companies that provide something you can eat, wear or maybe electronics. Either way, in these times its a risk. But, taking a big risk can provide big rewards . . . or big loss. :eek:)
 

·
Registered
Joined
·
8,904 Posts
The advice to avoid the automotive sector was valid about 6 months ago...

Now you have to ask yourself
Will GM see Chapter 11? If you think the answer in NO then BUY... If yes then don't... This isn't really investing... That is more like gambling... but if you know the answer to that question you could make A LOT of money.
 

·
Registered
Joined
·
113 Posts
Don't invest what you can't lose. Nothing wrong with dropping a few hundred bucks if you have it on GM or Ford right now. You can get a bunch of stock cheap at the moment. If it goes up, you're in great shape. If not, you aren't out much.
This is exactly what I'm thinking. take a gamble with a small ammount of money. I'll look to throw down a few hundred and see what happens....
 

·
Registered
Joined
·
8,904 Posts
This is exactly what I'm thinking. take a gamble with a small amount of money. I'll look to throw down a few hundred and see what happens....
But one thing for sure... wait until MONDAY!.. Extra super duper bad news coming TOMORROW!

GM shares will be back in the "4s" by end of trading today ($5.03 right now)... If the news is as bad as everyone thinks... expect to see high "3s" tomorrow...

Dark Days Indeed.
 
1 - 13 of 13 Posts
Top