The automotive sector in general and automotive stocks in particular have been a mixed bag recently. Oil prices are holding steady, which is good for selling cars, but after record sales the past few years, it’s only natural to eventually have a dip. And that's where we are today.
But then President Trump comes into office and the Environmental Protection Agency (EPA) reviews fuel efficiency guidelines. At this point, it appears that a lowering of the required miles per gallon standards starting in 2025 will happen.
With all of this mixed news, are automotive stocks a place you should invest right now? Is your money better served in other sectors like technology? While that sector is hot, there are some automotive stocks that are worth looking at.
3 Hot Automotive Stocks
#1. Ford Motor Company (NYSE:F)
One of the biggest automakers in the U.S., Ford is a solid company to invest in for the long term, even with declining auto sales. The company recently reported a net profit of $1.6 billion and revenues of $36.5 billion, both of which beat analyst expectations. Ford also maintained its earnings outlook for 2017.
But what has many investors excited at Ford is ArgoAI. This is a joint venture between Ford, Alphabet (NASDAQ:GOOG) and Uber to bring autonomous cars to market. What makes this venture so interesting is that it is attracting the field's top talent. It does this by giving the developers a cut of the equity if they can deliver. As a result, people are expecting big things from ArgoAI.
Finally, for long-term investors, Ford is paying a healthy 5.2% dividend, which is easily sustainable for years to come.
#2. Renault (PA:RENA)
Many U.S. investors who aren’t car buffs may not be familiar with Renault. But it is the largest auto maker in France and sell autos worldwide. While the bigger players in the sector get the headlines, Renault does its thing and continues to deliver.
The company recently reported earnings and increased revenue by 13%, operating profit by 38% and profit margins to 6.4%. The company has a long-term plan to reach 7% profit margins and it is well on its way to achieving this goal.
The good news is that these increases in income and profitability are not expected to be short lived. The company sells a good number of automobiles in Brazil and Russia, which have seen large drops in numbers. The company expects sales to level off in 2017 in these countries and then slowly begin to rise again.
Another area where Renault does well is China. Auto sales there are not slowing, but rising. So as sales in most of the countries Renault does business in rise, and sales stabilize in Brazil and Russia, the future looks very bright for this auto maker.
#3. Volkswagen (DE:VOWG_p)
Ask any investor in 2016 if they were in Volkswagen and most would say no. After the huge diesel scandal broke and fines were assessed, even the experts predicted that Volkswagen was doomed. Boy were they wrong.
While 2016 was a tough year for the automaker, Volkswagen is not dead. In fact, revenue is up 2% and it has become the largest auto maker in the world based on sales. Even better news is that the company took the initiative to cut operating costs a few years ago.
That plan is paying off as the company recently reported an increase in operating profit of 40%. As sales continue to turn around, the car maker will be earning a higher profit on each sale it makes.
The stock price is still nowhere near where it was before the scandal, but there is no reason why it won’t get back there as sales rebound and Volkswagen puts the scandal in its rearview mirror.
Final Thoughts
Automotive stocks have some hurdles to overcome as a whole. But as with any industry, there are always some companies that are positioned better than others to survive turbulent times. The 3 stocks listed here are set up to sustain any short-term issues and continue growing.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.