2020 US Auto Sales Slip to 1970s Level: ETFs, Stocks in Focus

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Being badly hit by the coronavirus pandemic, the U.S. auto industry witnessed the worst plunge in 2020 not seen since the 1970s. In fact, the auto sales dropped 15.4% year over year to 14.46 million new vehicles last year, representing the largest year-over-year percentage decline since 2008.

Of the six major American and Japanese automakers, Nissan NSANY stood at the bottom of the table, registering a 33.2% decline in sales, followed by a drop of 17.4% for Fiat Chrysler FCAU, 16.3% for Honda Motors HMC, 15.6% for Ford Motor F, 12% for General Motors GM, and 11.9% for Toyota Motor TM. Notably, General Motors, Toyota and Ford saw five consecutive years of decline.

The second quarter of 2020 was the worst as the COVID-19 pandemic led to the closure of factory and dealerships resulting in lower auto demand across the country. Record job losses and mass work-from-home policies added to the weakness. Major automakers reported a more than 30% drop in U.S. auto sales — the biggest plunge since the Great Recession and the auto bankruptcies of 2009.

The sluggish trend is likely to reverse this year given that the automakers started showing strong signs of recovery last quarter. This is because the wide reach of COVID-19 vaccinations is expected to result in swift economic recovery, thereby leading to a healing job market, rising consumer sentiment and surging auto demand (read: Sector ETFs to Gain the Most on COVID-19 Vaccine Rollout).

Additionally, strong consumer demand for pick-up trucks and sport-utility vehicles as well as lower interest rates will continue to fuel car sales. The Fed has pledged to keep rates at lower levels until the end of 2023. Persistent lower interest rates will encourage new-car buying, pushing more consumers to avail loans. Further, with continued acceleration in digitalization, the auto industry will get a boost as automakers are propelling their online services.  

Moreover, the auto sector has a compelling valuation with a P/E ratio of 15.45, the second lowest of all the 16 Zacks sectors. This could lead to an upside in auto stocks this year. Below we highlight the pure play auto ETFs and a few stocks that could be attractive picks for 2021:

First Trust NASDAQ Global Auto ETF CARZ

This fund offers a pure-play global exposure to 34 auto stocks by tracking the NASDAQ OMX Global Auto Index. It has a moderate concentration across components as each of these make up for less than 8.2% share. CARZ has a lower level of $51.3 million in AUM and trades in a small average daily trading volume of about 23,000 shares. The product charges 70 bps in fees per year and has a Zacks ETF Rank #3 (Hold) with High risk outlook (read: 5 ETFs Set to Soar on Tesla’s Robust Q4 Deliveries).

Tesla Inc. TSLA

It designs, develops, manufactures, leases and sells electric vehicles, and energy generation and storage systems in the United States, China, the Netherlands, Norway, and internationally. Tesla is the market leader in battery-powered electric car sales in the United States, owning around 60% of market share. The stock saw solid earnings estimate revision of 15 cents over the past month for this year with an estimated growth of 60.5%. Tesla has a Zacks Rank #1 (Strong Buy) and Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Genuine Parts Company GPC

This company distributes automotive and industrial replacement parts and materials, and business products across the United States, Canada, Mexico, Australia, New Zealand, Singapore, Indonesia, France, the U.K., Germany and Poland. The stock witnessed positive earnings estimate revision of a penny for this year over the past 30 days. It has a Zacks Rank #2 (Buy) and a Growth Score of A.

Cummins Inc. CMI

This company is a leading global designer, manufacturer and distributor of diesel and natural gas engines and powertrain-related component products. The stock witnessed positive earnings estimate revision of 15 cents for this year over the past 30 days. It has a Zacks Rank #2 and Growth Score of B (read: 5 Best ETF Investing Ideas for 2021).

HarleyDavidson Inc. HOG

This company manufactures and sells custom, cruiser and touring motorcycles. The stock witnessed no earnings estimate revision for this year in a month and has an estimated earnings growth of 280.1%. It has a Zacks Rank #1 and Growth Score of B.

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