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.”
7. AutoNation, Inc. (NYSE:AN)
Number of Hedge Fund Holders: 38
AutoNation, Inc. (NYSE:AN) is an automotive retailer based in Fort Lauderdale, Florida. The company offers new and used vehicles, parts, and automotive repair and maintenance services.
While many automotive retailers have been struggling in the current economy, investors may still benefit from considering investing in AutoNation, Inc. (NYSE:AN) because it is dedicated to mitigating the impact of the economy on its earnings and growth. One strategy deployed by the company to do this is highlighted by its history of stock buybacks. Between 2021 and 2022, AutoNation, Inc. (NYSE:AN) bought back about $4 billion of its stock, and in its first-quarter earnings call, the company’s board authorized an additional $1 billion of share repurchases.
Share repurchases help companies improve and juice up their EPS. Through this strategy, AutoNation, Inc. (NYSE:AN) did manage to protect its earnings in the first quarter, and it thus continued with this strategy in the second quarter as well. AutoNation, Inc. (NYSE:AN) is also actively making investments in marketing and capital expenditures to build up its inventory. These moves have also resulted in many investors developing a more optimistic opinion of the stock and its long-term growth prospects.
In the second quarter, there were 38 hedge funds long AutoNation, Inc. (NYSE:AN), with a total stake value of $616.3 million.
Alluvium Asset Management mentioned AutoNation, Inc. (NYSE:AN) in its second-quarter 2024 investor letter:
“AutoNation, Inc. (NYSE:AN) (down 3.7%) operates around 350 dealer franchises across the US, as well as collision centres and used vehicle stores. When compared to Group 1, it sells more units at a slightly higher price and margin, and derives around 50% more revenue. But its strategy is different, with nationwide branding and centralised operations. Although we prefer the Group 1 model, the economics of Autonation look attractive to us. And by introducing this into the portfolio we could thereby invest more than 5% of assets in this sector without necessitating the sale of other attractive large positions. And so after selling a little Group 1 and buying Autonation we ended the quarter with 4.1% and 1.9% positions respectively.”
6. Lear Corporation (NYSE:LEA)
Number of Hedge Fund Holders: 40
Lear Corporation (NYSE: LEA) is an automotive parts provider. The company develops and supplies automotive seating and electrical distribution systems, among more. It is based in Southfield, Michigan.
Many investors are interested in buying Lear Corporation (NYSE: LEA) because of the potential they see in its innovative solutions and its focus on incorporating AI, robotics, and vision systems within its business. In this regard, the company recently acquired WIP Industrial Automation, through which it aims to design AI and robotics-enabled turnkey solutions for complex industrial challenges that will help Lear Corporation (NYSE: LEA) accelerate its global automation initiatives.
Another attractive feature of Lear Corporation (NYSE: LEA) is its cheap valuation at present. The stock is currently trading at a P/E ratio of 9.1 versus the sector median of 15.6. As it stands, Lear Corporation (NYSE: LEA) is incredibly undervalued and thus represents an attractive automotive stock pick for value investors. The company is also working on becoming a leader in advanced manufacturing integration, for which its WIP acquisition will come in handy.
Lear Corporation (NYSE:LEA) was spotted in the portfolios of 40 hedge funds in the second quarter, with a total stake value of $1.4 billion.
5. BorgWarner Inc. (NYSE:BWA)
Number of Hedge Fund Holders: 41
BorgWarner Inc. (NYSE:BWA) is an automotive parts and equipment provider based in Auburn Hills, Michigan. It offers solutions for combustion, hybrid, and electric vehicles worldwide.
In its second-quarter earnings call, BorgWarner Inc. (NYSE:BWA) announced an increase in its full-year margin and earnings guidance, aided by the fact that the company delivered a strong margin of 10.4%, up 30 basis points year-over-year, and EPS of $1.19, up $0.13 year-over-year, in the second quarter. Because of these results, BorgWarner Inc. (NYSE:BWA) has increased its full-year margin outlook to 9.6%-9.8% from 9.2%-9.6% previously. Full-year adjusted EPS outlook was increased to a range of $3.95-$4.15.
The primary reason for BorgWarner Inc.’s (NYSE:BWA) positive performance over the past quarters is the resiliency of its technology-focused portfolio and free cash flow, which keeps the company afloat in any type of end-market environment. In the second quarter, BorgWarner Inc. (NYSE:BWA) brought in free cash flow of $297 million, up $267 million year-over-year. In light of these results, the company also reaffirmed its position that it will outperform the market by 350-450 basis points for the full year of 2024, making BorgWarner Inc. (NYSE:BWA) a highly attractive automotive stock to invest in right now.
At the end of the second quarter, there were 41 hedge funds long BorgWarner Inc. (NYSE:BWA) with a total stake value of $725.5 million.
4. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 47
Ford Motor Company (NYSE:F) is a reputable automobile manufacturing company. It is based in Dearborn, Michigan.
Many investors have been flocking to Ford Motor Company (NYSE:F) for years because of its incredibly cheap valuation. It’s currently trading with a P/E ratio of 5.9, which is significantly below the sector median of 15.9. Additionally, Ford Motor Company (NYSE:F) has been seeing immense growth so far this year, with the company’s second-quarter earnings call shedding light on the success of its Ford Pro business.
Ford Pro is the business segment dedicated to providing business productivity tools that link gas, diesel, and electric vehicles to manage fleets holistically. This segment alone brought in $70 billion in revenue for Ford Motor Company (NYSE:F) in the second quarter. The company has also managed to retain its strong financial position, with the second quarter ending with Ford Motor Company (NYSE:F) having about $27 billion in cash and $45 billion in liquidity.
Ford Motor Company (NYSE:F) was seen in the 13F holdings of 47 hedge funds in the second quarter, with a total stake value of $1.5 billion.
3. Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Holders: 61
Carvana Co. (NYSE:CVNA) is an automotive retail company that operates an e-commerce platform for buying and selling used cars in the US. It is based in Tempe, Arizona.
A lot of investors may be wondering why Carvana Co. (NYSE:CVNA) is on this list, seeing as its retail sales growth has been slowing. However, a closer look at the company’s growth trajectory shows that previously, the company was expanding too fast and too expensively. The pullback on retail sales growth is actually a strategy that Carvana Co. (NYSE:CVNA) is employing to focus all efforts on more profitable sales – a strategy that has yielded impressive results. Carvana Co.’s (NYSE:CVNA) Gross Profit Per Unit (GPU) has actually been rising as a result of this strategy. In 2023, its GPU came in at $5,500, which was a new record for the company and was about $1000 higher than its previous record in 2021.
Carvana Co. (NYSE:CVNA) has also been working on cutting expenses, with 2024 marking the year when it was able to cut over $1.1 billion of its annualized Selling, General, and Administrative expenses. The company has also been working on improving its liquidity by restructuring its debt, through which it has saved about $430 million in annual interest expense. In the first quarter, Carvana Co. (NYSE:CVNA) also delivered the best results in its history, with net income coming in at $49 million, in stark contrast to the $286 million loss of last year. Overall, now seems like a good time to invest in Carvana Co. (NYSE:CVNA) as it’s really turning things around for itself at a fast pace.
There were 61 hedge funds long Carvana Co. (NYSE:CVNA) in the second quarter, with a total stake value of $5.1 billion.
2. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 72
General Motors Company (NYSE:GM) is a provider of trucks, crossovers, cars, and automobile parts. It is a well-known automotive company that is based in Detroit, Michigan.
General Motors Company (NYSE:GM) is a great automotive play for several reasons. First, the stock is among the most underrated options in the EV market because most investors still consider it to be a traditional automotive company. General Motors Company (NYSE:GM) is actually developing an EV strategy, the progress of which has been impressive, to say the least. Some of the EV products it’s offering include the Hummer EV, Chevy Silverado EV, and Cadillac Lyric SUV. In the second quarter alone, General Motors Company (NYSE:GM) delivered 22,000 EVs, which represents a growth of 40% year-over-year and provided the company with a market share of 2.2% higher than it was a year ago.
A second reason for investing in General Motors Company (NYSE:GM) today is that the stock is incredibly cheap. The stock has a P/E ratio of 5.01, which is well below the sector median of 15.9. The main reason behind the stock’s cheap valuation is its massive profitability. If we look at the second quarter, General Motors Company (NYSE:GM) produced about $5.3 billion in free cash flow, which represents the best figure reported by the company since 2020 – and it managed to rake in this much money while maintaining pricing power above the industry average. All in all, General Motors Company (NYSE:GM) is an exceptional automotive stock to invest in right now.
A total of 72 hedge funds were long General Motors Company (NYSE:GM) in the second quarter, with a total stake value of $4.1 billion.
1. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 85
Tesla, Inc. (NASDAQ:TSLA) is the pioneer in electric vehicle manufacturing and is based in Austin, Texas.
Some investors may be skeptical about Tesla, Inc. (NASDAQ:TSLA), considering the fact that EV sales have been slowing, primarily because of the high cost associated with battery replacements. However, a big incentive to invest in Tesla, Inc. (NASDAQ:TSLA) right now is the fact that it is diversifying its business. A major chunk of this diversification is coming from the robotaxi business that the company is developing. Longtime investor in Tesla, Inc. (NASDAQ:TSLA), Cathie Wood, has actually based much of her thesis for owning this stock on the potential of the robotaxi business. Wood believes that this business may comprise 86% of Tesla, Inc.’s (NASDAQ:TSLA) earnings in 2029.
Another reason for investing in Tesla, Inc. (NASDAQ:TSLA), often cited by enthusiastic investors, is Musk’s vision for the company’s future. Whether it’s robotaxis or the Optimus robot, these proposals seem to attract many investors who believe in the strength of their growth potential. Overall, Tesla, Inc. (NASDAQ:TSLA) has seen revenue growth of 30.8% over the past five years and 31.6% over the past three years, so there is enough justification for believing that the company will only continue to see more growth in the future.
We saw 85 hedge funds long Tesla, Inc. (NASDAQ:TSLA) in the second quarter, with a total stake value of $4.9 billion.
While automotive stocks like TSLA have great potential, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the ones mentioned in our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
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