Finding winning auto stocks to buy is difficult this year. The world is still trying to recover from a pandemic. The global shutdowns wreaked havoc on manufacturing, and the auto sector felt it hard. As a result, auto stock investors have been shy about paying up for the stocks now. They have had success, but that ended late last year for the most part.
Today we will lay out a comprehensive list of auto stocks to buy in any market. The strategy is timeless, so it’s up to the investors to choose the appropriate time frames. Finding perfect entry levels is a tricky proposition. Most investors usually seek one moment to load up. In reality, the better method is to average into a full position at different times, preferably on dips. To make that strategy almost foolproof, we should vet each entry as a perfect one.
Currently, all equities are struggling. The U.S. Federal Reserve has embarked on a war against inflation. Since they can’t control supply, they are out to destroy demand. Investors should beware this process. Lacking courage, Wall Street is allowing everything — including auto stocks — to fall through important support levels. The good news is that this usually creates setups for future gains.
My overall conclusion for all of these auto stocks to buy on this overall dip. They all deserve to be here, but none are guaranteed to succeed. Managements need to continue to shine, else I reserve the right to demote them. Also, buying dips in general is difficult, and darn near impossible under these conditions. I would caution against going all in as if this is a bottom. We don’t know if the indices have finished correcting. Therefore, it would be foolish to completely buy into auto stocks regardless of how great they are.
The mix of names I chose represents different facets of the industry. There are mass marketers, luxury giants, and start up hopefuls. That last honor strictly includes alternative propulsion fuels, mainly electric vehicles (EVs). The EV is coming fast, but the internal combustion engine (ICE) will continue to dominate for a while.
Toyota (NYSE:TM) has been a global leader in the auto industry for a long while. The rest have been playing catch up, so it’s my first pick of auto stocks to buy and hold. If the car business is booming, I bet that Toyota is in the thick of it. To a certain degree, it opened the door for the EV revolution to happen. The success of the Prius placed cracks in the ICE dominance. Before that, all other efforts to introduce a contender failed.
Financially, the company is solid. Last year, it generated $33 billion in cash from operations. So it has resources to plow through its future ventures. With the advent of ESG investing, its leadership position looks even better. It has proved that it can do it with the hybrids, and it also has the Mirai.
While the world decides what will the next king of propulsion will be, TM stock has the baseline to excel. Its leadership role means it will have willing partners to accomplish whatever is necessary to stay competitive. This also includes the exciting next gen of solid state batteries. If the EVs are to beat ICE, they will need better “gas” tanks than currently available.
All the argument I presented for Toyota also apply to Volkswagen (OTCMKTS:VWAGY). This is currently the largest auto manufacturer on the planet, barely beating Toyota for the spot. Therefore, it too has earned the right to be on our list of auto stocks to buy on dips. It has proven time and again that it know how to dominate.
While it started out simple, it has now iconic brands all over. It even has solid representation in the EV segment. I can attest that the Audi EV is becoming more ubiquitous in my neighborhood. I live in Southern California, so we’ve been on the forefront of EVs for a while. Regardless of the type of vehicles, Volkswagen finds a way to succeeded.
From the VW Beetle to the Audi e-tron, it’s got this industry covered. So owning VWAGY stock as a bullish thesis for the long term is sane. So far, the financial metrics are impressive. Though revenues have only grew 23% since 2015, the net income has tripled in that time. Management is doing more with what they have. It’s this efficiency that can make the investment thesis solid.
Technically, VWAGY stock is about 20% above its pandemic baseline. This was also a base for all of 2019 before it, so the bulls will want to protect it. Below that there are more support levels that date back almost a decade. The bears have done well so far. But taking it much lower than current will require more global problems that this current hot mess.
General Motors (GM)
The American automotive industry has not had an easy path of late. Even now it is struggling with backlogs and inventory issues. This has deteriorated since 2020, so I won’t blame things on bad management. The tests from that year were unique, and so far, the industry get a passing grade. General Motors (NYSE:GM) stock was already trending downwards in 2020 before it hit the Covid-19 cliff.
From the trough, GM stock rallied 355% before crashing again. It now sits below the start of the pandemic woes, so it’s back on its losing trajectory from that year. Luckily, just below $30 per share there is potential support. That zone has been pivotal for years, so the bulls will fight for it again. It has been battlegrounds since the resurgence of GM from government control.
This time, GM has the tall order of switching directions into alternative fuels. While this was the casual goal for a while, now it has become policy. It is committed to the goal of being the leading EV company.
GM stock deserves to be on any list of auto stocks by default. It is a giant, and its leadership is competent enough to make the switch. The transition will not be easy, so I expect occasional tough times ahead. Its financial metrics aren’t perfect, but they don’t raise any cause for concern. It has enough cash and other resources to succeed.
If GM is on the list, then Ford (NYSE:F) must also be on it. The companies are lifelong frenemies. Ford has the same challenges with regards to a sales mix shift. It has also committed to exiting the fossil fuel propulsion business. This means killing its profit centers to grow its current losers. EV sales are not yet profitable, so pushing buyers into them is counterintuitive.
In addition to the new industry direction, the shortages are also creating a hostile operating environment. The F-150 truck has been a superstar seller. Trying to replace it with the F-150 Lightning is a big gamble. Therefore, the scoreboard for F stock might get much worse before it gets better. Ford investors might want to keep their levels of enthusiasm in check. I would suggest avoiding chasing it above $20. So it’s a good idea to leave dry powder to pounce on serious dips.
F stock is still more than double its pandemic low. While I see a pivot near $10 per share, I don’t see a prior bounce until $1.50 below that. If markets continue to correct, that would make a place of entry for the long term.
If we are compiling a list of auto stocks to buy, we should include one of the most iconic brands. Ferrari (NYSE:RACE) stock is 35% off the highs but has fallen into its 2020 pivot. It was from about this level that it collapsed in February 2020.
Now it is performing as well as the indices, so the pain here is not intrinsic. The S&P 500 struggles are across the board, so there aren’t Ferrari-specific problems. The fans of the brand are second to none, so this should translate into success for RACE stock. The financial metrics are showing consistent improvement. RACE revenues have grown 60% and net income has tripled since 2015.
These results support the bullish thesis that the future of the company is on rails. It recently announced more commitments to EVs. Demand has never been a problem, so it will sell out of every vehicle it makes. Short of a complete disaster, RACE stock should remain a stock to own for the long time. Right here it is not an all-in opportunity, but it could be a decent start. If the correction continues and RACE falls into its recent support, it would a better bargain.
Tesla (NASDAQ:TSLA) changed the future of automobile manufacturing. It gave the EV the ability to compete against ICE machines. The once small NUMMI plant is a legitimate contender on a global stage. Even the old dogs are chasing it, but it has a large first mover advantage. This has been a momentum stock, so it is tricky to trade.
On the way up, it always looks too hot to chase. Then on the way down it can scare most investors out. In reality, buying the dips seem foolproof. Moreover, the journey has been extremely profitable for the early adopters of TSLA stock. Even now, there are lot of skeptics still perhaps because of the behavior of its CEO Elon Musk. He is constantly making news that distracts from Tesla’s accomplishments.
The company now has excellent financial metrics. Last year, it generated $11.5 billion in cash from operations. Furthermore, it has much better gross margins than the legacy manufactures by far. To not include Tesla in a list of auto stocks to buy would be a mistake. Love it or hate it, it’s here to stay, and will do better in the future.
This last pick was about as close to a tie as it gets. I had a hard time choosing between Lucid (NASDAQ:LCID) and Rivian (NASDAQ:RIVN). Both are newcomers to the EV sector and at about the same stage of development. Both companies have fans, and in the end, there will be room for both to win.
LCID stock is 75% off its highs, but that’s a good reason to start building a position now. It has started limited delivery of its cars, but it is suffering delays. For now, management will have cover on that front. They can always blame it on the chip shortages among other global delays. In the end, they will need to just promise what they can deliver and no more.
Investors have been patient with Lucid cars, but investors have not had the same patience for LCID stock. The good news is that it is near its bottom — enough to make the upside opportunity attractive. This is especially true if the time frame to hold is long. The faster scalpers of LCID stock will need help from the general markets.
It has recovered well from its May low. This is tangible improvement, especially since the indices failed to do the same. This relative out-performance could be an indication that the LCID price now is lean enough to warrant a nibble. I do not trust it enough to take a full position yet.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.