Saturday, May 11, 2013

Auto Retail Stocks: Too Good to be True?

Could an investment be too good to be true?
Lost amidst the earnings reports by such investor favorites as Apple and Procter & Gamble were the earnings reports of the auto retailers.
I'm not talking about the auto manufacturers like Ford and Toyota. I'm talking about the retailers who simply sell, and in many cases, repair, cars and trucks. I was surprised to learn that a handful of these companies are publicly traded and that some of the retailers have dealerships all across the country.
A bunch of them recently reported earnings and they didn't just have good quarters, they had unbelievable quarters. They had the kind of quarters most businesses only dream about.
Auto Sales Returning To "Normal"
But how is that possible more than three years into the auto recovery? It's not as as if auto sales haven't been rising the last few years. Car sales bottomed in 2009 at 10.4 million and have been steadily rising ever since. Automobile analysts expect 2013 sales of 15.1 million. That is near a "normal" auto sales market for the United States.
But a perfect combination of improving credit availability with zero down loans, pent up demand from buyers driving older cars for longer than they otherwise would have, and a housing market recovery fueling pick-up sales, has resulted in the best of times for the retailers.
Three Auto Retail Stocks With the Best Fundamentals
Even though the auto stocks have had big run-ups, it's not too late to get into the sector. Valuations are still attractive. The companies are also expected to have double digit earnings growth this year as analysts expect the growth to remain through 2013 and possibly into 2014.
It doesn't get much better than buying both solid fundamentals and big earnings growth.
However, not all of the auto retailers are created equal. These three auto retailers have the best combination of fundamentals and the Zacks Rank in the sector. All three are Zacks Rank #2 (Buy) stocks.  (more)

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