Top Gear: My No. 1 Auto Play

As I write this, the Dow is rallying after several top automakers beat expectations for May auto sales. Here are a few highlights from the nation’s top automakers:

  • Ford Motor (F) posted a 2.2% increase in May sales. This beat Edmunds.com’s projection of a 2.0% sales increase. Interesting, retail sales fell 0.8% while fleet sales jumped 8.4%. Sales of the F-series pickup truck soared 12.8%.
  • General Motors (GM) surprised investors by posting a 1.3% drop in sales. This was well below Edmunds’ expectations of 5.7% growth and Kelley Blue Book’s projections of 3.1% growth. GM’s Buick and Cadillac brands jumped 28.5% and 9.2%, respectively, while Chevrolet and GMC sales fell.

Both Honda Motor Co. (HMC) and Toyota Motor Corp. (TM) will release their May results later today. Overall, analysts are expecting total vehicle sales of 16.9 million for the month of May. This would represent a slight increase from April, which would mark the first month-over-month increase for this year. Automakers have been more aggressive with incentives, creating a strong buyers’ market.

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. Ford, Honda and Toyota are also struggling to firm up their financial statements.

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 Ferrari NV (RACE). Based in Italy, Ferrari is the legendary maker of sports cars. Ferrari offers seven vehicle models, including four sports cars (488 GTB, 488 Spider, F12 Berlinetta and special series F12 Tour de France) and three GT cars (California T, FF, and GTC4Lusso).

Since Ferrari went public in 2015, the company has strived to boost its vehicle production. In 2016, the company built more than 8,000 cars, which were sold in its 62 markets worldwide. It popular, high-margin cars, like the 488 Spider, are currently dominating the company’s orders. And while Ferrari is facing stiff competition from McLaren and Porsche, Ferrari’s most-popular models still retain their resale value due to its great brand and waiting list to order a 488 Spider.

This, of course, translates into strong earnings potential. For the current quarter, the analyst community is expecting 11% annual sales growth and 27.6% annual earnings growth. Ferrari is expected to release its second-quarter results on or around August 3. RACE is an A-rated Strong Buy and I consider it one of my top automotive plays.

Sincerely,

Louis Navellier

Louis Navellier

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