The average automotive stock dived about 25% in the second quarter.
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The first half of 2022 was painful for the automotive sector, with most car stocks dropping farther than the broader market. But that pain can create opportunity: Several stocks look like big winners, according to Wall Street.
The second quarter was especially brutal: The S&P 500 dropped 16.5%, the Dow Jones Industrial Average slid 11.8%, and the average automotive stock dived about 25%. Inflation and rising interest rates sapped investor enthusiasm for all stocks and hit the auto sector a little harder.
Inflation threatens profit margins for car companies via higher costs, and higher rates threaten demand because most cars are purchased with financing. Rising rates also make monthly payments more expensive.
Despite the tough backdrop, Wall Street sees opportunity. The best bets, based on analyst target prices, are: Stellantis (ticker: STLA), General Motors (GM), parts maker Aptiv (APTV), Chinese EV firm NIO ( NIO
), and parts maker Magna International (MGA). The average gain implied by price targets is about 66%, given where the stocks closed at the end of June.
Analysts price targets, of course, are just one way to screen for new ideas. And when markets become volatile—like they were in the second quarter—these targets can often lag behind actual stock prices, on the upside or downside.
Those five stocks, however, also have above-average Buy-rating ratios. The ratio is the number of Buy ratings compared with the total number of ratings. The average Buy-rating ratio for stocks in the S&P 500 is about 58%. Analysts ratings aren’t the be-all, end-all for investors, but they can help ensure investors aren’t looking at stocks that are cheap for some fundamental reason.
Excluding the Buy-ratio criteria adds some other interesting candidates for investors to consider. Price targets for Tesla
(TSLA), Rivian Automotive (RIVN), QuantumScape (QS), and Nikola (NKLA) shares imply upside of 33%, 98%, 113%, and 142%, respectively, based on June 30 closing prices.
More than half of analysts covering Tesla and Rivian rate shares Buy. Less than 25% of analysts covering QuantumScape and Nikola rate shares Buy.
In any case, things should get better eventually for car stocks as well as the broader market—they usually do, especially once shares are cheap enough.
Write to Al Root at [email protected]
