General Motors and 4 Other Great Value Stocks for 2017
The U.S. auto industry has been experiencing a bull run for the last few years. 2016 sales are expected to be around 17.5 million, in line with the figure recorded in the previous year. The trend is likely to continue into 2017.
What lies ahead for the auto sector?
President-elect Donald Trump’s policies on imports and economic relations with other countries are expected to impact the industry significantly. Trump’s relation with China could be affected by what the country feels was a breach of the “One China Policy.” An article in the country’s official newspaper, China Daily, revealed a state planning official’s claim that the country will soon fine a U.S. automaker for monopolistic behavior and price fixing.
Moreover, Trump’s claims to prevent outsourcing of production for automakers to reduce labor cost in countries like Mexico may further affect the industry. Automakers claim it is unprofitable and expensive for them to manufacture small cars within the U.S. With the high level of uncertainty in the sector, it may be beneficial to invest in companies with strong fundamentals that make valuable picks.
Keeping politics aside, the auto industry, on the whole, is performing well. The National Automobile Dealers Association (“NADA”) expects U.S. auto sales to be healthy in 2017, albeit slower on a year-over-year basis. New car and light truck sales are expected to reach 17.1 million units next year, as per NADA estimates.
Moreover, the regulation related to fuel economy easing is likely to benefit the sector. Rising employment levels and personal income, low fuel prices and easy availability of credit are some of the factors that have been driving auto sales. Moreover, the high average age of cars on U.S. roads continue to boost replacement demand.
Auto-Tires-Trucks Sector 5YR % Return
Auto-Tires-Trucks Sector 5YR % Return
Screening the Stocks
Overall, the auto sector has been bullish so far. However, considering the uncertain environment of the sector, value stocks may prove to be the most beneficial. It is important to find the right stocks to capitalize on the bountiful opportunities.
We have chosen value stocks with strong fundamentals that increase potential returns. A value stock implies stocks trading lower than their fair value or intrinsic value and thus offer a significant upside potential. For this particular strategy, the stocks with a Value Score of ‘A’ have been selected.
Moreover, we have zeroed in on stocks with a low price/earnings (“P/E”) ratio as these can prove to be great bargains. A low P/E indicates a decline in a stock’s price or an improvement in its earnings performance.
Top Pick
Within the auto sector, our key pick for a value stock is General Motors Company GM. The company has a Value Score of ‘A’ and the current P/E ratio stands at 6.05. The company recently announced an investment of around $552 million in the U.S. for upgrading manufacturing facilities. The company is focused on investing in innovative technologies and vehicles which should provide sustained growth while maximizing shareholder value.
General Motors is also concentrating on developing electric cars at a lower price than Tesla, a company specializing in electric cars. Moreover, in November, the company reported the highest sales volume growth. The company holds a Zacks Rank #2 (Buy) which further implies that it may be a good pick. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Other Stock Picks
We have picked 4 other stocks in the auto sector that are expected to provide good returns over the long haul.
Fiat Chrysler Automobiles N.V. FCAU also holds a Zacks Rank #2. The company, headquartered in London, UK, has a P/E of 5.17.
China Automotive Systems Inc. CAAS, a China-based automaker, also holds a Zacks Rank #2. The company has a P/E of 7.74.
SORL Auto Parts, Inc. SORL also holds a Zacks Rank #2. The company, headquartered in China, has a P/E of 4.45.
GKN plc GKNLY also holds a Zacks Rank #2. The company, headquartered in Redditch, UK, has a P/E of 10.39.
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FIAT CHRYSLER (FCAU): Free Stock Analysis Report
GKN PLC (GKNLY): Free Stock Analysis Report
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CHINA AUTO SYS (CAAS): Free Stock Analysis Report
GENERAL MOTORS (GM): Free Stock Analysis Report
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