3 Auto Stocks Driving Higher

Tom Roberts

Volatility has crept back into the market due to uncertainty and a lightening fast news cycle that has put the brakes on some stocks.

Pressure on the Fed to hike and then cut rates, sensational headlines, news tweets and tariff wars with China and Europe have forced some trade sensitive stocks to go off the track.

But that doesn’t mean you can’t find investment opportunities to drive your portfolio higher.

In fact, several stocks in the auto sector are showing accelerated growth this year, especially in an extended period of low gas prices.

Investors should consider climbing into the driver’s seat now, while other stocks are in the pits, as a great way to get your portfolio back on the lead lap.

Here are three auto stocks driving higher despite the tariff wars and Fed rate hikes (or cuts).

 

CarMax

When Americans need to buy a car and want a reliable used vehicle, they go to CarMax Inc. (NASDAQ: KMX).

The company is one of the largest used car retailers in the U.S., and it’s captured significant market share by offering quality vehicles at attractive prices.

Recently the company clocked its third straight quarter of earnings growth. The gains were fueled not only by strong vehicle sales, but also by revenues from the company’s auto financing branch. More importantly new store expansion and an aggressive push into the online channel has kept CarMax’s fiscal engine revving.

In a fast-changing digital environment for car buying CarMax has stayed with the race leaders by adding additional services: Online appraisals, home delivery and financing pre-approval.

Persistently low auto loan rates, along with an aging vehicle fleet (the average age of a car in the U.S. is 11 years), could keep the throttle pinned on KMX shares’ 55.6% gain so far in 2019.

 

O’Reilly Automotive

The auto sector can’t survive without a good pit crew of mechanics and dependable parts suppliers. O’Reilly Automotive (NASDAQ: ORLY) has consistently delivered, winning important races while avoiding getting crushed by the “Amazon effect.”

The company sells after-market auto parts and tools to mechanics and consumers who love to work on their cars. O’Reilly’s business model is unique with over 5,000 locations and a superior shipping process that can deliver spare parts on short notice. That’s an important win for professional mechanics that continue to benefit from drivers who are keeping their cars longer these days.

Earnings are up again this year over last and analyst projections show at least another 15% growth rate in 2020 supported by many “Strong Buy” recommendations.

What’s not to like about O’Reilly lapping the competitors as the stock has gained 112% over the last 2 years and is up 22% year-to-date.

 

General Motors

The final auto stock in our portfolio garage is industry stalwart General Motors (NYSE: GM).

The Detroit giant expertly navigated the boulders flung on by the tariff wars to increasing market share and revenue and profits… and yet this auto stock is still undervalued by Wall Street.

The company reported second-quarter revenue and earnings that exceeded analyst estimates, despite weaker sales in China. This success was largely due to strong sales of more profitable pickup trucks and SUVs.

Gasoline prices are fairly low by historical standards and likely continue to remain low into next year. When gas prices go down, people are more willing to buy pickups and SUVs, which should lead to continued strong sales of these high-margin vehicles.

GM shares aren’t likely to deliver as much trading upside as O’Reilly or CarMax. But if you’re looking for a dependable dividend driver that will keep pumping higher despite Presidential tariff tweets, then GM will likely be as reliable as a diesel engine.

 

 

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