Behind the Wheel with Phil Lebeau

Auto Stocks Stuck in Neutral


Call it prosperity without a whole lot of pull, at least when it comes to investors. This is the new reality of the auto industry. Business is booming, profits are strong, investors are indifferent.

NYSE traders floor
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Just look at General Motors . The world’s largest automaker beat the street with first quarter earnings of $.93/share (est.: $.85/share) earnings $2.2 Billion EBIT and $1 Billion in net profits. By all accounts, it was a solid quarter.

That’s nice, but shares of GM continue to trend lower (down more than 30 percent in the last year) because of concerns about a lack of growth later this year and a weak European economy pressuring the bottom line.

GM’s not the only automaker in this boat. Look at the auto stocks in the last year (as of May 3RD):

  • Ford down more than 28 percent
  • Hyundai down more than 9 percent
  • Johnson Controls down almost 20 percent
  • Lear down more than 16 percent

There are a few exceptions in the auto industry. Some stocks like Borg Warner are up in the last year. Some of the auto dealer stocks, like Group One are also seeing great returns for investors.

Still, this is a sector where many look at the profits and yawn. So what if some of the automakers are coming off some of their most profitable years ever. For investors the strong profits are not enough. They want assurances the losses in Europe will end soon.

Right now, nobody can predict when the European auto market will get back in the black. It could be later this year or two years from now. The only certainty is automakers are likely to continue racking up big losses for the foreseeable future.

Investors want one other thing from the auto industry: Expanding profit margins. While they have rebounded from a few years ago, margins appear to have hit a plateau for most in the auto industry. Borg Warner is the exception and as a result, investors have pushed the parts supplier higher, up more than 147 percent in the past 3 years.

While it may seem cliché to say auto stocks are stuck in neutral, it really is a perfect description for this Spring.


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