Top Gear: My No. 1 Auto Play

The Dow closed at a record high today after the top six automakers beat expectations for November auto sales. Last month, 1.3 million cars were sold in the U.S., a 4.6% improvement over November 2013. Interestingly enough, there were only 25 selling days in November 2014, one less day than last year. Annual auto sales are now at about 17.2 million vehicles, the best pace in over 11 years. It also blew analysts’ estimates of a 16.7 million pace out of the water.

Here are a few highlights from the nation’s top automakers:

  • Ford Motor (F) posted a slight drop in sales but still matched analysts’ estimates. Sales of the F-150 fell due to the ongoing changeover to the 2015 model, but that is expected to rebound once the redesigned pick-up is fully rolled out.
  • General Motors (GM) posted a 6.5% jump in November sales, let by Chevrolet Silverado and GMC Sierra full-size pickups.
  • Honda (HMC) reported a 4.6% jump in auto sales, setting records with the CR-V compact crossover SUV and the redesigned Fit subcompact hatchback.
  • Toyota Motor Corp. (TM) saw sales rise 3% on rising demand for SUVs and the Corolla compact sedan.

Word on the Street is that lower fuel prices and clever advertising helped drive strong auto sales. And automakers are optimistic that business will be brisk through the holidays. However, is it really time to buy into the auto industry again? Let’s take a look by running these stocks through Portfolio Grader…

As you can see, Ford, General Motors, Honda and Toyota have their work cut out for them. With buying pressure like this (as indicated by each stock’s Quantitative Grade), it’s going to take more than one month’s worth of solid retail data to get a buy recommendation from me. Each of these companies is also struggling to firm up its financial statements; all four fail on sales growth and analyst earnings revisions.

That’s not to say that you should steer clear of the automotive industry entirely. I’d just approach it from a different angle. For example, one company I’ve had my eye on lately is Alcoa Inc. (AA), which is a big name in the lightweight metals business, especially aluminum.

At the beginning of the year, Ford Motor announced its new F-150 pickup will be made with an all-aluminum body. While aluminum is more costly than steel, automakers are turning to the lighter metal to make their cars more fuel efficient. Analysts are calling this the biggest boon for the industry since beer cans made the switch from steel to aluminum. And Alcoa is ready to meet this surge in demand; last year alone the company invested $1 billion in U.S. factories that produce metal for automobiles.

This, of course, translates into strong earnings potential. AA is an A-rated Strong Buy and I consider it one of my top plays on the recovering auto market.


Louis Navellier

Louis Navellier

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