After the American Dream of owning a home started falling apart during the financial crisis, there was a new American Dream that took shape, owning a car.
But it appears that the U.S. auto industry could now be getting a bit toppy. Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) are the leaders in the U.S. car- manufacturing market. And these stocks have been the biggest benefactors of the bustling auto industry. Ford Motor Company (NYSE:F) is at near-decade highs and General Motors Company (NYSE:GM) is back to 2010 IPO levels.
More signs of trouble — auto debt is back up near previous highs…
…and auto sales have been on a tear since bottoming in 2009. Current U.S. auto sales are nearly 16 million and only have about 10% growth before returning to the glory days of the early-to-mid 2000s.
Still opportunities in housing?
Unlike the auto industry, which has returned to prior crisis levels, homes are still well below those levels and could still be a solid investment opportunity…
Homeownership is also still down around mid-1990s levels.
Hope for American made?
Ford Motor Company (NYSE:F) is the industry leader for U.S. auto manufacturing, with General Motors Company (NYSE:GM) in a close second. Both of the companies might be recognizing the saturating of the U.S. auto market, where Ford is looking to break out of America and move into the emerging markets. This includes its key areas of Argentina, Brazil, China, India and Thailand. Asia is expected to account for some 70% of the car-maker’s total global growth through 2020.
Ford Motor Company (NYSE:F) is also looking to make the big move to smaller cars, which are expected to be a big hit in the heavily populated country of China, with 15 planned new models specifically targeted for China that are expected to be introduced over the next few years.
On the other side of the car spectrum, with General Motors Company (NYSE:GM) planning to introduce Cadillac to the Chinese luxury market, Ford Motor Company (NYSE:F) is looking to boost its Lincoln offering in the country, planning to make offerings in 2014.
Last week, General Motors Company (NYSE:GM) posted EPS of $0.75 compared to $0.90 for the same quarter last year. This comes as the company is turning away from America and focusing on emerging markets, which includes China and India. Other major moves? The company is expanding dealerships in Indonesia and Thailand.
GM is building four new plants in China to help boost its production capacity to 5 million vehicles annually. The total investment in China is expected to be upwards of $11 billion by 2016. GM is also just hoping to break even in Europe by 2015.
Investing opportunities in home building
Although the car industry might be topping out, I still believe there are investment opportunities in the home-building industry. This includes the industry leader by revenue, PulteGroup, Inc. (NYSE:PHM). The bursting of the real estate bubble is making home ownership more affordable. What should help drive the housing market higher in the near future should be job growth and a loosening of the credit markets.
PulteGroup, Inc. (NYSE:PHM) is also shedding its low-margin projects to focus on high-return communities. The company hopes to use the proceeds to continue buying up land at cheap values. For 2013 and 2014, Pulte plans to spend some upwards of $1.4 billion on land. And unlike many competitors, Pulte is focusing on higher-priced, move-up homes — which should boost its average selling price over time.
The other reason to love Pulte is its stronghold on the retirement community. With Del Webb, Pulte is the major player in the active-adult housing market. This market should begin to accelerate in the future as the baby boomer generation starts to retire.
D.R. Horton, Inc. (NYSE:DHI) is right up there with PulteGroup as an industry leader. D.R.’s June-ended quarter was impressive, with EPS coming in at $0.38 compared to $0.20 for the same period last year. This came as revenue increased 47%.
The home builder saw new home orders and backlogs grow by double digits in the first six months of 2013. Much like Pulte, D.R. is increasing investments in land. This move should give both home builders an advantage when it comes to having supply in key markets.
D.R. Horton, Inc. (NYSE:DHI)’s key segment is the South-Central area of the U.S., which accounts for over 30% of revenue and includes Louisiana, New Mexico, Oklahoma and Texas. Meanwhile, Pulte’s key segment is the Southwest, which is focused on Arizona, Nevada and Southern California.
Bottom line
Although the U.S. auto industry might be peaking, I still think the housing industry has room to move higher. The major U.S. car companies, Ford and GM, are looking to make their way into international markets to help further drive growth, but I would play a wait-and-see game with these. But the major home builders, PulteGroup and D.R. Horton, are offering investors solid investment opportunities in the U.S.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors (NYSE:GM). The Motley Fool owns shares of Ford.
The article This Industry Is Overheating originally appeared on Fool.com and is written by Marshall Hargrave.
Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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