Although consumer sentiment dipped a bit in the most recent reading, car sales remain quite robust. In fact, for the most recent retail sales report, auto sales moved higher by 1% when compared to July, and accelerated 12.3% in year-over-year terms. With this backdrop it shouldn’t be surprising to note that car sales were actually the best since before the Great Recession began, coming in at an impressive 16.1 million unit annual rate.
However, it isn’t just the U.S. market that is surging higher, as a number of international economies are moving in the right direction on the car sales front. In particular, Europe is finally showing signs of life again, as its economy slowly comes out of the doldrums. Car sales have arguably bottomed in this huge market, and Moody’s is now projecting 3% growth for 2014 car sales in Europe as well (also see Europe ETF Investing 101).
Emerging markets too have shown strength in recent months, led by the once again rising Chinese market. Strong sales were seen across this country, with more double digit growth coming for this increasingly-important automotive destination, suggesting a very positive trend across the world in the car market.
How to Play
While looking at a number of auto stocks is a solid way to play this trend, investors can obtain global exposure to this space with the First Trust Nasdaq Global Auto Index ETF (CARZ). This product has surged in the past six months—up over 20%-- and it could be a solid pick thanks to its Zacks ETF Rank of 2 (Buy) (see the Auto ETF in Focus as Car Sales Surge).
If you are looking for something off the beaten path though, a commodity pick may be an intriguing choice. In particular both platinum and palladium are heavily tied to car demand as nearly 50% of their production goes to catalytic converters.
These converters are key for reducing car emissions, and so when car production is surging, demand for these metals can increase as well. It is important to note that platinum is arguably more important for the domestic market, while palladium—thanks to a heavier reliance on diesel fuel—is more important in Europe.
For platinum, investors have the ETFS Physical Platinum Shares (PPLT), while palladium investors have the ETFS Physical Palladium Shares (PALL). Both of these have been beaten down lately, but they have favorable Zacks ETF Ranks and could be poised to surge in the weeks ahead should car demand remain robust (see all the precious metal ETFs here).
For more on these ETFs and the positive trends in the car market, watch our short video on the subject below:
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author is long PPLT
Read the analyst report on CARZRead the analyst report on PPLTRead the analyst report on PALLZacks Investment Research
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