Five Best Auto Manufacturing Stocks To Buy This Year

2015 was a good year for the automotive sector with vehicle sales rising to record levels. However, that stunning sales growth failed to translate into a rally for automotive stocks. Despite the improvement in their financial performance, stocks of most auto heavyweights ended 2015 either flat or with a loss. Since auto stocks failed to perform well when the tide was on their side last year, some analysts are concerned whether they will be able to do so going forward when they face major headwinds like rising delinquencies and interest rates of subprime auto loans and the continuing growth of ride-sharing services such as ‘Uber’ and ‘Lyft’. Even though auto industry experts, on their part, acknowledge that the industry faces those headwinds, they also think that some of those concerns are overblown and the sector will continue to grow in the future like it had in the past century despite facing numerous headwinds. While we don’t know which side will eventually win this argument, we do know the auto stocks that were backed heavily by smart money at the end of 2015 and hence can potentially outperform their peers in the coming quarters. Therefore, in this post we will focus on the five most popular auto stocks among the over 800 hedge funds covered by us going into 2016.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5 PACCAR Inc (NASDAQ:PCAR)

– Investors with Long Positions (as of December 31): 24

– Aggregate Value of Investors’ Holdings (as of December 31): $460 million

Though the shares of PACCAR Inc (NASDAQ:PCAR) suffered an over 9% decline and its ownership among funds covered by us declined by 10 during the fourth quarter, the  aggregate value of their holdings in the company actually saw a net increase of $8.7 million during the same period. Billionaire Ken Griffin‘s Citadel Investment Group made a three-fold increase in its stake in the company to 971,074 shares during that period. This year, PACCAR Inc (NASDAQ:PCAR)’s stock has appreciated by over 11%, however, trading at a trailing P/E of 11.85 analysts believe that it is still undervalued. On March 24, the stock saw a sharp correction after the company revealed that in its fiscal 2016 first quarter it will set aside $945 million in provisions for costs related to the ongoing truck price-fixing probe by European regulators. Following Navistar (NYSE:NAV)’s CEO comments, on March 3, which indicated that the company is open to merger talks, there are rumors that PACCAR Inc can make a bid for Navistar.

#4 Fiat Chrysler Automobiles NV (NYSE:FCAU)

– Investors with Long Positions (as of December 31): 28

– Aggregate Value of Investors’ Holdings (as of December 31): $1.26 billion

Shares of Fiat Chrysler Automobiles NV (NYSE:FCAU) remained in a tight range during the fourth quarter, ahead of its spinoff of Ferrari NV. During that period, investors covered by us with long positions in the stock decreased by six, but the aggregate value of their holdings in the company saw a rise of $77 million.  Though Fiat Chrysler Automobiles NV (NYSE:FCAU)’s stock has declined by 46% so far this year, a large part of those losses came on January 4, when the spinoff of Ferrari NV was completed. Most analysts who track Fiat Chrysler Automobiles NV (NYSE:FCAU) currently are not much optimistic about its future growth since the company has a lot of debt on its balance sheet and its margins have declined significantly after the Ferrari spinoff. They are also concerned that its talk with other automobile manufacturers for a potential merger hasn’t yielded any results so far.

#3 Tesla Motors Inc (NASDAQ:TSLA)

– Investors with Long Positions (as of December 31): 29

– Aggregate Value of Investors’ Holdings (as of December 31): $837.44 million

The ownership of Tesla Motors Inc (NASDAQ:TSLA) among the funds in our database inched up by three during the fourth quarter, but the aggregate value of their holdings in the company during the same period declined by 17.2%. Daniel Benton‘s Andor Capital Management made no changes to its stake in the company during the fourth quarter and continued to own 1 million shares of Tesla Motors Inc (NASDAQ:TSLA) heading into 2016. Tesla Motors Inc (NASDAQ:TSLA)’s stock fell at the start of 2016, but has recovered swiftly since the company reported its fourth-quarter results, on February 10, and now trades down by only 4.16% year-to-date. The company is currently preparing to host an event in California, on March 31, at which it will give attendees a chance to test drive the prototype of its much-awaited Model 3 and also start taking reservations for the car. According to analysts, Tesla can raise around $300-$400 million from Model 3 deposits, but taking into account the company’s capital expenditure going forward, it needs to raise another $2 billion by issuing fresh equity or debt in the coming quarters.

#2 Ford Motor Company (NYSE:F)

– Investors with Long Positions (as of December 31): 39

– Aggregate Value of Investors’ Holdings (as of December 31): $1.03 billion

Moving on, the number of funds covered by us with long positions in Ford Motor Company (NYSE:F) inched up by one and the aggregate value of their positions jumped by $124 million during the fourth quarter. Ken Heebner‘s Capital Growth Management was among the few funds that reduced their stakes in the company during that period, it cut its holding by 52% to 3.73 million shares. Though the company has performed exceedingly well in the past few quarters, its shares have gone nowhere during that time and are currently trading down by 7% year-to-date. Most analysts feel that due to lack confidence among investors, Ford Motor Company (NYSE:F)’s stock has become very cheap as it trades at a forward P/E of 6.47 and at a price-to-sales multiple of only 0.35. For its fiscal 2016 first quarter, analysts project Ford to deliver EPS of $0.47 on revenue of $35.56 billion, significantly above the EPS of $0.23 on revenue of $33.90 billion it reported for the same quarter of the previous year.

#1 General Motors Company (NYSE:GM)

– Investors with Long Positions (as of December 31): 84

– Aggregate Value of Investors’ Holdings (as of December 31): $4.93 billion

Despite its ownership among smart money investors from our database inching down by four and the aggregate value of their holdings in it dwindling by $180 million during the fourth quarter, General Motors Company (NYSE:GM) remained the favorite auto stock among hedge funds going into 2016. With ownership of 50 million shares of the company, Warren Buffett‘s Berkshire Hathaway was the largest shareholder of General Motors Company (NYSE:GM) at the end of December among funds we track. At the beginning of 2016, the auto giant boosted its stock repurchase program to $9 billion and extended it through 2017. However, this move hasn’t helped its stock, which has depreciated by over 9% so far this year. The company currently pays a quarterly dividend of $0.38, which at its current stock price translates into an attractive annual dividend yield of 5%. The stock currently sports an average rating of ‘Overweight’ and an average price target of $38.11.

Disclosure: None