In this article, we will be taking a look at the 10 best automotive stocks to buy now.
Headwinds in the Automotive Industry
The automotive industry is heavily commoditized relative to other industries considering the fact that consumers typically have numerous options in terms of the car they want to purchase, resulting in the need for automotive companies to compete with each other predominantly on pricing. As a result, many automotive companies, especially those offering pricier vehicles, have been seeing a decline in revenue growth and profit margins over the past couple of years. This decline is primarily a consequence of rising inflation which has significantly cut down your average consumer’s spending power.
According to Daryl Kenningham in his interview on CNBC’s “Squawk Box,” the President and CEO of Group 1 Automotive, the wider macroeconomic trends surrounding the automotive industry and the support of Original Equipment Manufacturers (OEMs) in the market have resulted in prices for vehicles, both used and new, beginning to fall in 2024 – though this price decline is being seen more evidently in the case of new cars, seeing as there has been a prolonged shortage of pre-owned cars in the market. Despite the decline, though, the average transaction costs for purchasing any car are still pretty high, which has been acting as an impediment barring consumers from getting into cars.
Rising Industry Trends
Considering the current market conditions, many consumers are thus looking for lower-priced vehicles. This spells trouble for electric vehicle (EV) producers since EVs are notorious for their hefty price tags and pricey battery replacements, and lays the foundation for the newest hot trend in the automotive space: hybrid cars. Ford’s former CEO, Mark Fields, in his interview on CNBC’s “Squawk Box” on August 30, noted that because of the greater convenience offered by hybrid cars, automakers dabbling within the EV space should expand their hybrid offerings. Simultaneously, the vision of producing pure EVs shouldn’t be entirely abandoned either – instead, time and resources must be dedicated to producing lower-priced EVs that automakers can actually make money on.
Fields further added that another impediment to the growth of EV makers today is the prolonged waiting time for charging an EV. For this, the only viable solution on the horizon is the development of solid-state batteries that can significantly reduce charge time to about 5-10 minutes – around the same time you spend at a typical gas station. However, the mass production of solid-state batteries and their incorporation in EVs is still something that we won’t see happening in the near future. This is why we believe that investors interested in automotive stocks should look at not only EV manufacturers but also traditional vehicle producers or, even better, companies that offer both types of vehicles to their consumers. The list we have compiled below reflects this position.
A luxury car dealership’s showroom, representing the automotive industry the company operates in.
Our Methodology
We used a stock screener to identify stocks in the automotive manufacturing, retail, and parts businesses. We then shortlisted the stocks based on the number of hedge funds holding stakes in them, from the lowest to the highest number, by using Insider Monkey’s hedge fund data for the second quarter.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Best Automotive Stocks To Buy Now
10. Autoliv Inc. (NYSE:ALV)
Number of Hedge Fund Holders: 37
Autoliv Inc. (NYSE:ALV) is an automotive parts provider based in Sweden. It offers passive safety systems to the automotive industry globally.
One of the main reasons why Autoliv Inc. (NYSE:ALV) is considered a popular automotive stock right now is its global reach and ability to leverage its presence in various regions. The company offers its products in Europe, the Americas, China, Japan, and the rest of Asia at present. An example of Autoliv Inc. (NYSE:ALV) leveraging its presence was highlighted by company management in its second-quarter earnings call, where a strategic cooperation agreement that Autoliv Inc. (NYSE:ALV) signed with XPENG AEROHT, China’s leading flying car innovator, was mentioned.
Through this agreement, Autoliv Inc. (NYSE:ALV) aims to pioneer safety solutions for future mobility. Since China is a market that is seeing an immense rise in the use and demand of electric and automotive vehicles, Autoliv Inc.’s (NYSE:ALV) agreement with XPENG has great potential to drive the company to newer heights. Autoliv Inc. (NYSE:ALV) also saw its gross profit for the second quarter rise by 6% or $28 million to $475 million, while its gross margin increased by 1.3% to 18.2% total.
There were 37 hedge funds long Autoliv Inc. (NYSE:ALV) in the second quarter, with a total stake value of $1.2 billion. Cevian Capital was the most prominent shareholder, holding 6,298,508 shares.
9. Rivian Automotive Inc. (NASDAQ:RIVN)
Number of Hedge Fund Holders: 37
Rivian Automotive Inc. (NASDAQ:RIVN) is a manufacturer of electric vehicles and accessories that is based in Irvine, California. It offers consumer vehicles such as pickup trucks and sport utility vehicles, among more.
While Rivian Automotive Inc. (NASDAQ:RIVN) is considered a risky investment because of its novel and unique EV tech, those investors who don’t mind a little bit of risk in their portfolios could really stand to profit immensely by owning this stock. Rivian Automotive Inc. (NASDAQ:RIVN) has been entering lucrative partnerships with major companies such as Amazon and Volkswagen. It also has about $7.7 billion in cash and short-term investments as of this August, which means that the company is well-positioned to continue developing its EV technology for profit in the foreseeable future.
The partnership with Volkswagen has also been attracting more investors since it offers a great platform for Rivian Automotive Inc. (NASDAQ:RIVN) to showcase its zonal hardware design and integrated technology platform. Under the partnership, this platform will act as the foundation for developing new software-defined vehicles for both Rivian Automotive Inc. (NASDAQ:RIVN) and Volkswagen. Overall, investors’ opinions on this stock seem largely positive in light of these factors.
We saw 37 hedge funds long Rivian Automotive Inc. (NASDAQ:RIVN) in the second quarter, with a total stake value of $383.6 million. Soros Fund Management was the largest shareholder, holding 198,436,000 shares.
Baron Funds mentioned Rivian Automotive Inc. (NASDAQ:RIVN) in its first-quarter 2024 investor letter:
“Shares of Rivian Automotive, Inc. (NASDAQ:RIVN), a U.S.-based EV manufacturer, declined 53.3% in the first quarter. Despite substantial improvements in production and delivery volumes in 2023, as well as an improvement in unit economics, Rivian’s business remains constrained by its limited scale, which creates pressure on gross margins, and contributes to the company’s elevated cash burn. Additionally, Rivian expects to temporarily shut down its production facilities for upgrades, impeding anticipated production growth in 2024. Compounding these challenges is the potential for demand headwinds due to the continued complex macro environment, and the relatively small automotive segments that Rivian’s initial products target. Nevertheless, the recent unveiling of Rivian’s mass-market products, the R2 and R3, garnered enthusiastic responses, evidenced by over 68,000 pre-orders within the first 20 hours post-launch. In a strategic move, management opted to produce the R2 in Rivian’s existing facility, deferring the construction of a new factory. This decision should help reduce mid-term capital expenditure obligations while ensuring higher utilization of current facilities as the R2 ramps production in 2025. We remain shareholders.”
8. Aptiv PLC (NYSE:APTV)
Number of Hedge Fund Holders: 38
Aptiv PLC (NYSE:APTV) is an automotive parts provider based in Ireland. It provides electrical, electronic, and safety technology solutions to the automotive and commercial vehicle markets.
Several trends are propelling Aptiv PLC’s (NYSE:APTV) growth this year, namely the rise in popularity and demand for electric and connected vehicles, and a growing focus on software and digitalization. This is because Aptiv PLC (NYSE:APTV) offers essential technology for automotive and electric vehicles, including advanced driver assistance systems, such as its Gen 6 ADAS platform.
A bigger plus for investors of Aptiv PLC (NYSE:APTV) is that even if the electric vehicle market stagnates because of pricing concerns, Aptiv PLC (NYSE:APTV) will still benefit from the move towards hybrid vehicles, which are cheaper and more popular than purely electric vehicles. The company is also committed to returning value to its shareholders since it approved a $5 billion share repurchase authorization in its second-quarter earnings call and did, in fact, return $434 million to shareholders through repurchases during the second quarter alone.
Aptiv PLC (NYSE:APTV) had 38 hedge funds long its stock in the second quarter, with a total stake value of over $1 billion. Impax Asset Management was the most prominent shareholder, holding 6,225,071 shares.
ClearBridge Investments mentioned Aptiv PLC (NYSE:APTV) in its first-quarter 2024 investor letter:
“Stock selection in the consumer discretionary sector was the leading detractor from relative performance, driven by idiosyncratic issues within a handful of holdings. Automotive parts supplier Aptiv PLC (NYSE:APTV) faced pressure as headwinds to the broader auto-cycle and a slowing in electric vehicle adoption weighed on margins. However, we believe that the company’s above-market growth, combined with opportunity for margin expansion, are compelling at its current valuation as the auto-cycle rebounds.”
