Cashing In On The Automakers With China Exposure (F, GM, TM, CAAS)
George Leong: The auto sector has been on a nice upward rally since trading at a bottom in July 2012, according to my stock analysis. Driven by low financing rates and rising domestic and foreign sales, we are seeing more carmakers taking the plunge and updating their older clunkers.
In January, auto sales were sizzling, with General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) recording sales growth of 16% and 22%, respectively. Toyota Motor Corporation (NYSE:TM) also rallied, reporting sales growth of 27% year-over-year in January. (Source: Seetharaman, D. and Klayman, Ben, “GM, Ford post stronger-than-expected auto sales for January,” Fox Business, February 1, 2013.)
The numbers are estimated to be even better this year, so it would be an opportune time to accumulate some auto and auto-based stocks, based on my stock analysis. GM estimates that there will be between 15 million and 15.5 million autos sold this year. (Source: Ibid.)
Take a look at the stock chart for the S&P 500 Automobiles & Components Industry Group Index below. Notice the bullish ascending triangle followed by the breakout at the horizontal blue resistance line. But there is risk, as the index is currently facing support at the present level on weakening relative strength and a bearish moving average convergence/divergence, according to my technical analysis. Watch to see if the support level holds.
Chart courtesy of www.StockCharts.com
My stock analysis indicates that the auto sector has gone through major structural changes over the past few years since the bankruptcy of General Motors (GM) in June 2009. In the nearly four years since, my stock analysis shows that the auto sector has aggressively revamped its operations via cutting money-losing vehicles and divisions, streamlining product lines, and producing much better and more fuel-efficient vehicles for the global market.
Today the U.S. auto sector is lean and mean and able to deal effectively with changes in industry demands, such as producing more fuel-efficient vehicles, according to my stock analysis.
Moreover, for GM and Ford, the companies have also found insatiable growth in emerging markets, specifically China, which now account for a key portion of the company’s market share. In 2012, GM and its Chinese joint partners sold about 2.8 million vehicles in China, up 11.3% year-over-year form 2011. GM will also add another 400 dealers in China, bringing the total Chinese network to 4,200 dealers, in an effort to take advantage of the popularity of GM vehicles in China. (Source: “GM to add 400 dealers in China in 2013,” Automotive News January 14, 2013, last accessed February 4, 2013.)
GM has a market share of about 14.7% of the Chinese auto market, based on 19.3 million vehicles sold in 2012. (Source: Nedelea, A., “China Car Market Up 10% by the End of 2013,” autoevolution, January 29, 2013.) The article also suggested that the Chinese auto market could grow by as much as 10% this year. My stock analysis suggests that there is money to be made in China’s auto sector.
My stock analysis also notes that the other major U.S. automakers, along with European and Japanese automakers, are also increasing their focus on the massive Chinese auto market, now tops in the world. The irony is that if not for China, GM would likely be hurting, as China accounts for about 20% of GM’s total global sales, according to my stock analysis. The Chinese love their GM cars; the brand is considered to be prestigious and much better quality than the Chinese-made clunkers.
You may want to drive to the exits when it comes to these stocks, but that would be one of many investor mistakes, as my stock analysis suggests that China’s auto market makes an excellent contrarian play, especially the foreign automakers. My stock analysis has shown me numerous ways to play the Chinese auto sector and how to make money, such as buying the likes of GM, Ford, and Toyota. Alternatively, my stock analysis favors a more speculative approach, buying Chinese auto stocks listed on the U.S. stock exchanges, such as China Automotive Systems, Inc. (NASDAQ:CAAS), a maker of power steering components and systems.