COVID has impacted the auto sector, but these stocks survived
The fall in crude oil prices resulted in a growth in the demand for light trucks and sports utility vehicles, at the cost of small vehicles
The automotive industry in the United States experienced a drop in demand in early 2020 due to the pandemic. Vehicle sales were down 38% year-on-year. In such a situation, recent improvements in the economy helped the sector overall, and the fall in crude prices lifted the demand for light trucks and sports utility vehicles at the expense of compact cars and sedans.
General Motors Company (NYSE: GM), Fiat Chrysler Automobiles N.V.(NYSE: FCAU), and Ford (NYSE: F) are the key US-based automakers, although Chrysler is a fully owned subsidiary of Europe-based Fiat Chrysler Automobiles Holding. General Motors was the manufacturer with the highest market share in the last quarter of fiscal 2020, followed by Ford and Toyota.
General Motors’ stock declined in the early weeks of last year but recovered strongly in the latter part of the year. Sales increase sequentially in each month of the fourth quarter, despite the pandemic-related shutdown. During the fourth quarter, domestic sales increased by 4.8% as the company gained market share in the large pickup segment, which accounts for 37.5% of total sales. China sales grew a healthy 12%. In the fiscal year 2020, it sold around 2.25 million vehicles in the U.S. The company is currently planning to compete in the electric vehicle segment (EV). With its new EV model scheduled to come in 2021, the market seems to be in full swing and the stock saw a rally, lately. It traded at above $50 on Thursday.
Fiat Chrysler Automobiles
Fiat Chrysler appears an attractive pick, as analysts have been suggesting strong buy because of an upward trend in the earnings estimate. The consequent rating upgrades imply an improvement in the company’s core business. For the fiscal year ended December 2020, the automaker is expected to generate revenues of $106.86 billion, which is a 13% decline from the previous year’s number.
According to reports, the company is planning for a merger with French automotive maker Peugeot. Analysts believe the merger will enhance Fiat Chrysler’s credit profile recovery during the pandemic. The deal is said to be worth about $50 billion and will help the companies better their position in the market. Together, the companies believe they have a better chance of transitioning smoothly to electric vehicles. Since the merger reports, the stock has been seeing a good upward trend. It seems investors care only about the low valuation. But Fiat is trading at 9x forward earnings, which means even the strongest of corrections in the market will not lead to much of a downtrend. In the last trading session, the stock closed at $16.11, after suffering a sharp loss earlier this week.
Ford Motor Company
Ford reported $37.5 billion in revenue in the third quarter, while its peers failed to make an impact and had a very slow recovery. Analysts had predicted revenue of $33.5 billion but the company surprised everyone with the strong beat. From 2021 to 2025, new EV launches from Ford should help the company grow its market share. Assuming that the global auto market would stabilize and witness a mild growth post-2020, Ford could grow sales by around 3% per year from 2021 to 2025.
In the third quarter, Ford’s total market share climbed to 14.9% even as earnings nearly doubled to 65 cents per share and topped expectations. The year 2021 is a great opportunity for the company as it has lined up new models in every segment, which can fully offset the losses incurred last year. Ford can be a good buy as its sales and profits are rebounding. While the company moves into the electric vehicle market, it has plans to invest $11 billion and bring out about 40 EV models by 2022. The stock gained about 3% percent on Thursday.
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