As auto stocks race, Fiat pulls ahead of the pack with an old school strategy

Key Points
  • Fiat Chrysler is leading the pack of auto stocks, even beating out Tesla.
  • CEO Sergio Marchionne is poised to deliver on his strategy to liberate the company from a $9 billion debt pile.
John Elkann, chairman of Fiat SpA, center left, and Sergio Marchionne, chief executive officer of Fiat SpA and Chrysler Group LLC, center right, look at the new Jeep Renegade SUV automobile, produced by Chrysler Group LLC, as it stands on display at the company's stand on the opening day of the 84th Geneva International Motor Show in Geneva, Switzerland.
Chris Ratcliffe | Bloomberg | Getty Images

With investors rediscovering auto stocks and focusing on a future filled with self-driving cars and ride-sharing fleets, the top-performing stock in the sector is decidedly old school.

It's Fiat Chrysler, which is up 150 percent in the last year, well ahead of every other major automaker over the same time frame.

Still not impressed? Over the last year, the company's stock has easily outpaced shares of Tesla, which are up 61 percent. On Thursday, Morgan Stanley raised its price target for Fiat Chrysler's stock, and named it the top pick among U.S. auto shares.

Fiat's "track-record in strategic value enhancement speaks for itself," wrote analyst Adam Jonas.

As proof, consider Fiat Chrysler's better-than-expected third-quarter earnings, which were up 31 percent year over year, on an adjusted basis.

A CEO's strategy pays dividends

Ferrari Chairman Sergio Marchionne conducts a press briefing at the New York Stock Exchange in New York City.
Getty Images

For CEO Sergio Marchionne, the returns and the rise in Fiat Chrysler shares are proof his strategy is paying off. Three years ago, Marchionne and his team set a target for Fiat Chrysler to be debt-free in its automotive operations, with a $9 billion operating profit and a net industrial profit of $5 billion.

Back in 2014, more than a few analysts were skeptical the automaker could hit those lofty targets, but now that we're knocking on the door of 2018, those goals are within sight. In fact, Marchionne told analysts that if all goes as planned in the first two quarters of next year, he can practically guarantee Fiat Chrysler will achieve its goals.

How are they doing it?

Marchionne and his team have grown profits by focusing on the company's core assets, most notably Jeep, Ram and Maserati.

In addition, while almost every other automaker has invested billions trying to figure out how to build and make money off of self-driving and electric cars, Marchionne has saved his powder. Fiat Chrysler has invested modestly in those future technologies, choosing instead to partner with other automakers and tech firms.

Marchionne knows there are plenty who think fiat Chrysler is being "left behind" by an industry hyper-focused on mobility solutions. During the company's earnings call, he dismissed those concerns by saying: " I don't want to start chasing rainbows here, because if you chase rainbows you are going to fall off the cliff."

In raising his earnings estimates for Fiat Chrysler, Jonas pointed out Marchionne's strategy, writing, "We believe [Fiat] will not tempted to invest billions in autonomous technologies."

That decision is paying off not only for Fiat Chrysler, but also its shareholders.

NOTE: here are the returns over the last year for other major auto stocks

General Motors (GM) up 43.6 percent

Ford (F) up 2.8 percent

Fiat Chrysler (FCAU) up 150 percent

Toyota (TM) up 7.23 percent

Nissan (NSANY) down 1.9 percent

Honda (HMC) up 2.9 percent

Volkswagen up 20.3 percent

Tesla (TSLA) up 61 percent

Ferrari (RACE) UP 116 percent

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