Top Gear: My No. 1 Auto Play

The Dow closed just shy of 20,000 today after U.S. auto sales hit 17.6 million vehicles in December. The final numbers are still coming in, but it’s looking like 2016 was a record-breaking year for light vehicle sales. In any event, auto sales are expected to rise for the eighth year in a row.

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

  • Ford Motor (F) posted a 0.1% gain in auto sales, with retail sales climbing 5%. Ford’s F-series pickups sold at the fastest pace in 11 years.
  • General Motors (GM) announced a 10% jump in December sales, while retail sales hit a 10-year high.
  • Honda (HMC) reported a 6.4% jump in sales; while car sales slipped 4%, truck sales hit the gas, jumping 18%.
  • Toyota Motor Corp. (TM) saw sales rise 2.1% on rising demand for trucks.

These results certainly took Wall Street by surprise; each of these stocks rallied strongly today. 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 NVIDIA Inc. (NVDA), which develops technology that makes self-driving cars possible.

NVIDIA Corp. is a leading computer graphics company, making graphic processing units (GPUs) for consumers and businesses. From video games to professional visualization, datacenter and automotive applications, NVIDIA’s graphics cards enhance the processing capability of its users’ computers.

The company has been in the computer graphics business for more than two decades – it invented the GPU in 1999 – so it is a well-established player. To date, NVIDIA owns 7,300 patents relating to computer graphics, the largest portfolio of its kind.

While NVDA stock got its start as a graphics card company that catered to video game enthusiasts, it turns out that the GPU has a wide range of powerful applications. Graphics cards can be used to aid computers in applications like financial modeling, oil and gas exploration, virtual reality and even in self-driving cars.

To that last point, NVIDIA currently has partnerships with many leading automakers, including Audi, Tesla Motors Inc. (TSLA), Mercedes-Benz, Volvo, Honda Motor Co. (HMC) and BMW. As self-driving cars become more widely adopted, NVDA stock’s artificial intelligence car computing platform will be in hot demand.

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

Sincerely,

Louis Navellier

Louis Navellier

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