Which Is A Better Investment: Automakers, Auto Suppliers Or Car Parts/Service Providers?

With the economy faring relatively well amid resurgence in consumer confidence and in turn spending, the milieu is relatively favorable for auto and auto-related stocks. Added to the positive macroeconomic backdrop, automakers have been very lavish in splurging incentives to lure customers.

Economic Data Points Positive

• The conference board's consumer confidence reading for April released Tuesday showed a small decline in confidence from a near 17-year high. The headline consumer confidence index fell 4.6 points to 120.3 in April after it climbed solidly in March.
• Latest data on personal consumption expenditure showed the metric was up 3.5 percent sequentially in the fourth quarter of 2016, which is a fairly robust showing.
• The commerce department's retail sales report showed that sales of motor vehicles and parts dealers rose 3.8 percent year-over-year in the first quarter.

Healthy Auto Sales Data

Estimates by Edmunds show that auto sales rose to a record of 17.5 million in 2016, a 0.3 percent increase from 2015. December saw record sales of 1.68 million units.

That said, analysts expect a slight loss of momentum this year. Edmunds predicts new vehicle sales of 17.2 million units in 2017, which would mean that the industry is set to break the seven-year growth streak.

This has been confirmed by monthly sales numbers of the first three months of the year. Data released in early April showed most auto markets reported sales declines for March amid an inventory glut and rising incentives.

Against this backdrop, Benzinga looked at how much of returns an investor would have pocketed by staying invested in three categories of stocks namely:

1. Automakers.
2. Auto part retailers/Service Providers.
3. Auto component suppliers.

An investment horizon of two years was taken into consideration for comparison purpose.

Automakers

• Fiat Chrysler Automobiles NV FCAU: +5.26 percent.
• Ford Motor Company F: -27 percent.
• General Motors Company GM: -3.24 percent.
• Honda Motor Co Ltd (ADR) HMC: -19.4 percent.
• Toyota Motor Corp (ADR) TM: -21.6 percent.

Source: Y Charts

Auto Parts Retailers/Auto Dealers

• Advance Auto Parts, Inc. AAP: +0.68 percent.
• America's Car-Mart, Inc. CRMT: -28.3 percent.
• Asbury Automotive Group, Inc. ABG: -28.2 percent.
• AutoNation, Inc. AN: -31.4 percent.
• AutoZone, Inc. AZO: +3.30 percent.
• CarMax, Inc KMX: -13.5 percent.
• Copart, Inc. CPRT: +68.79 percent.
• Lithia Motors Inc LAD: -11.6 percent.
• Group 1 Automotive, Inc. GPI: -14.6 percent.
• O'Reilly Automotive Inc ORLY: +17.82 percent.
• U.S. Auto Parts Network, Inc. PRTS: +78.11 percent.

Source: Y Charts

Auto Component Suppliers

• American Axle & Manufact. Holdings, Inc. AXL: -26.9 percent.
• BorgWarner Inc. BWA: -32.5 percent.
• Dana Inc DAN: -10.3 percent.
• Gentex Corporation GNTX: +16.81 percent.
• Genuine Parts Company GPC: +1.76 percent.
• Magna International Inc. (USA) MGA: -19.9 percent.
• Tenneco Inc TEN: +7.90 percent.
• Visteon Corp VC: -3.27 percent.

Source: Y Charts

The Winning Sector In The Auto Industry Is...

The average returns of automakers over a two-year horizon is a negative 13.2 percent and that of auto component suppliers is a negative 8.3 percent. On the other hand, auto parts retailers/service providers netted returns of a positive 3.7 percent in the same period.

However, the showing of auto parts retailers/service providers pales in comparison before the S&P 500 Index, which was up 13.44 percent in the same period.

Related Links:

Are Auto Stocks Prime For A Pullback?

Did Subprime Auto Loans Just Claim Their First Victim In Ally Financial?