Strong sales, a weaker euro and renewed hopes for the euro zone have helped propel shares in European carmakers to record highs this year, with investors branding the sector their new "favorite".
While the market is still way below it pre-crisis highs, industry data released this week showed car sales in Europe are up for the 17th straight month, finally dispelling a six-year slump where sales fell to their lowest in decades.
New passenger car registrations in the European Union and European Free Trade Association trading block rose 6.2 percent in January to 1.03 million vehicles from 968,451 in the same month last year, according to data from the Association of European Carmakers (ACEA) published Tuesday.
The weakening euro is the key advantage, according to the new CEO of French car manufacturer PSA-Peugeot Citroen, Carlos Tavares, who has helped the firm's share price rally 40 percent so far this year through cost-cutting measures and debt reduction.
"(The weaker euro) is a significant advantage, as we manufactured 971,000 cars in France in 2014, so we have a powerful and efficient and manufacturing basis in Europe, that we are still improving. So each time the euro weakens it is a very good lever for exports from Europe," Tavares told CNBC late Wednesday.
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Shares in fellow French manufacturer Renault has also surged 40 percent year to date, while its German counterparts Volkswagen and BMW are up over 20 percent over the same period.
European fund managers polled by Bank of America Merrill Lynch said autos are now their "favored" sector, with some 26 percent of the 196 investor surveyed running $559 billion of assets saying they are now overweight the sector, a month-on-month gain of 12 percentage points
Director of European automotive research at Barclays, Kristina Church said her stock picks for the sector include Daimler and BMW, rather than rival Volkswagen.
"VW is not my top pick, there has been a lot of consensus downgrades in the last 18 months for Volkswagen. We think we might be through the end of the downgrades but we are struggling to see what the company can come out with to get investors more excited by the stock," Church told CNBC.
"There are other German names out there that we think offer more upside potential. Daimler has a very exciting product momentum still at Mercedes; we see that continuing to play out in the near term. BMW probably a stock that is a little bit less exciting in terms of catalysts – but expectations are relatively low for the stock. We think analysts are underestimating the potential of that business, so we do see considerable upside for BMW in 2015," she added.