In this article, we will take a look at the 11 best auto stocks to invest in.
The global automotive industry has undoubtedly been among the worst affected due to the Covid-19 pandemic amid the repeated lockdown restrictions this past year, causing an alarming decrease in vehicle manufacturing and sales. Sales in China plunged by 71%, in the United States by 41%, while the European automobile market experienced a staggering 80% drop in sales in what many consider the sharpest sales decline in multiple decades. Although the entire industry took a massive hit, the future is not so bleak. Research carried out by Moody’s predicts that the sales growth of the automotive industry will rise by 11.5% in 2021, while a survey conducted by the global consultancy group McKinsey revealed that the global consumer intent to purchases automobiles is close to pre-Covid-19 levels, with a significant focus on Electric Vehicles.
The rise of automotive corporations centered around EVs and a global push to combat greenhouse gas emissions by taxing automakers has caused traditional car manufacturers to shift towards cleaner energy options. The $1.74 billion European Green Vehicles Initiative aids in this endeavor. With consumers being increasingly aware of automobile sustainability, Electric vehicle sales have propelled up by 43% in 2020, thus pushing the industry towards cleaner, electric automobiles. In a Deloitte Global Automotive Consumer Study conducted in 2020, 21% of the total respondents in the United States were planning on purchasing a hybrid or battery electric vehicle.
Some of the top automotive stocks include General Motors Company (NYSE:GM), Tesla, Inc. (NASDAQ:TSLA), Ford Motor Company (NYSE:F) and NIO Inc. (NYSE:NIO), among other discussed in detail below.
Pixabay/Public Domain
Our Methodology
Let us now analyze our list of the 11 best auto stocks to invest in. We took into account hedge fund sentiments, analysts’ ratings, long-term growth potential, and fundamentals while choosing these stocks.
Why should we pay attention to hedge fund sentiment while choosing stocks?
Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Best Auto Stocks To Invest In
11. Honda Motor Co., Ltd (NYSE:HMC)
Number of Hedge Fund Holders: 10
Honda Motor Co., Ltd. (NYSE:HMC) is a Japanese multinational automobile manufacturer that designs and sells cars, trucks, motorcycles, and power equipment. Founded in 1946, Honda Motor Co., Ltd (NYSE:HMC) ranks eleventh on the list of the 11 best auto stocks to invest in.
At the end of the second quarter of 2021, 10 hedge funds in the database of Insider Monkey held stakes worth over $374.9 million in Honda Motor Co., Ltd (NYSE:HMC). This is compared to 12 hedge funds in the previous quarter with stakes worth approximately $432.8 million.
Honda Motor Co., Ltd (NYSE:HMC) will soon start launching its vehicles fitted with the Google Android Automotive operating system, a car system that includes a number of car-approved Android applications, including a voice-activated Google Maps assistant. The first of these cars will become available next year, according to the automotive company.
Out of the hedge funds being tracked by Insider Monkey, Jim Simons’ investment firm Renaissance Technologies is one of the leading shareholders in the company with 2.5 million shares worth more than $81 million.
Just like General Motors Company (NYSE:GM), Tesla, Inc. (NASDAQ:TSLA), Ford Motor Company (NYSE:F) and NIO Inc. (NYSE:NIO), Honda Motor Co., Ltd (NYSE:HMC) is one of the best auto stocks to invest in.
10. Toyota Motor Corporation (NYSE:TM)
Number of Hedge Fund Holders: 12
Toyota Motor Corporation (NYSE:TM) is one of the world’s largest automotive manufacturers. Based in Aichi, Japan, the firm makes regular cars, hybrid cars and more recently, electric cars as well, with total vehicle production reaching 10 million per year. Ranked tenth on the list of the 10 best auto stocks to invest in, Toyota Motor Corporation (NYSE:TM) has a market capitalization of $290.52 billion.
At the end of the second quarter of 2021, 12 hedge funds in the database of Insider Monkey held stakes worth over $903 million in Toyota Motor Corporation (NYSE:TM). This is compared to 18 hedge funds in the preceding quarter with stakes worth approximately $824 million.
On March 30th, Citi analyst Arifumi Yoshida resumed coverage on Toyota Motor Corporation (NYSE: TM) with a Buy rating.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Toyota Motor Corporation (NYSE:TM) with 4.63 million shares worth more than $810 million.
Just like General Motors Company (NYSE:GM), Tesla, Inc. (NASDAQ:TSLA), Ford Motor Company (NYSE:F) and NIO Inc. (NYSE:NIO), Toyota Motor Corporation (NYSE:TM) is a notable auto stock to invest in.
9. XPeng Inc. (NYSE:XPEV)
Number of Hedge Fund Holders: 19
XPeng Inc. (NYSE:XPEV) is a Chinese vehicle manufacturer headquartered in Guangzhou. The company engages in the design, manufacture and distribution of smart electric vehicles, alongside the provision of vehicle maintenance services. The electric vehicle maker ranks ninth on our list of the 11 best tech stocks to invest in.
On August 26, XPeng Inc. (NYSE:XPEV) released its second quarter earnings report for 2021. The company declared earnings per share at -$0.21, beating estimates by $0.03. The reported revenues for the quarter came in at $580.32 million, surpassing estimates by $64.77 million.
At the end of the second quarter of 2021, 19 hedge funds in the database of Insider Monkey held stakes worth over $784.6 million in XPeng Inc. (NYSE:XPEV). The number of hedge funds that held stakes in the company remained unchanged in both, the first and second quarters of 2021.
On October 1, BofA analyst Ming Hsun Lee raised his price target on XPeng Inc. (NYSE:XPEV) to $63 from $61 and kept a Buy rating on the shares, simultaneously predicting a revenue increase in the upcoming years for the company.
Just like General Motors Company (NYSE:GM), Tesla, Inc. (NASDAQ:TSLA), Ford Motor Company (NYSE:F) and NIO Inc. (NYSE:NIO), XPeng Inc. (NYSE:XPEV) is one of the top auto stocks to invest in.
8. Li Auto Inc. (NASDAQ:LI)
Number of Hedge Fund Holders: 20
Li Auto Inc. (NASDAQ:LI) is a Chinese electric vehicle manufacturer based in Beijing. Specializing in the design and production of electric vehicles, it’s most famous product is the Li ONE, a large premium six-seat electric SUV. Ranked eighth on the list of the 11 best auto stocks to invest in, Li Auto Inc, (NASDAQ:LI) has a market capitalization of $27.96 billion.
At the end of the second quarter of 2021, 20 hedge funds in the database of Insider Monkey held stakes worth $457.4 million in the vehicle manufacturer, up from 18 in the preceding quarter worth $493.8 million.
On August 30, Li Auto Inc. (NASDAQ:LI) issued its quarterly earnings report for the second quarter of 2021. The reported EPS was at -$0.01, missing market estimates by $0.01. On the other hand, the declared revenues of $779.14 million surpassed estimated revenues by $69.07 million.
On August 31, BofA analyst Ming Hsun Lee raised the his price target on Li Auto Inc. (NASDAQ:LI) to $42 from $39 and kept a Buy rating on the shares after the company announced its second quarter results.
Just like General Motors Company (NYSE:GM), Tesla, Inc. (NASDAQ:TSLA), Ford Motor Company (NYSE:F) and NIO Inc. (NYSE:NIO), Li Auto Inc. (NASDAQ:LI) is one of the best auto stocks to invest in.
7. Ferrari N.V (NYSE:RACE)
Number of Hedge Fund Holders: 27
Ferrari N.V (NYSE:RACE) is an Italy-based designer, manufacturer and retailer of luxury performance sports cars. Active in over 60 markets worldwide, Ferrari N.V (NYSE:RACE) comes in at seventh on the list of the 10 best auto stocks to invest in.
The company issued its quarterly earnings report for the second quarter of 2021, with reported earnings per share at $1.32, crossing the estimated EPS by $0.13. The company also reported revenues of $1.23 billion, an increase of 82.85% on a year-over-year basis, although falling short of the estimated revenue by $35.89 million.
At the end of the second quarter of 2021, 27 hedge funds in the database of Insider Monkey held stakes worth over $992.8 million in Ferrari N.V (NYSE:RACE). This is compared to 26 hedge funds in the preceding quarter with stakes worth approximately $1.25 billion.
On September 19, Oddo BHF began coverage of Ferrari N.V (NYSE:RACE) with an Outperform rating and $257 price target.
In the Q2 2021 investor letter of Ensemble Capital, the fund stated some of the issues the company faced these past few quarters, as well as its fantastic production during the pandemic. Here is what the fund said:
“Ferrari: After posting standout performance in 2020, beating the S&P 500 by over 20%, Ferrari’s share price performance has lagged for much of this year. The main issue this quarter was the company pushing out their medium-term financial targets due to development and production delays caused by COVID, but this only led to a 1% decline in the stock price for the full quarter. While we believe the company did a fantastic job maintaining production in light of COVID, it did not surprise us that some of their longer-term, new model introductions might be delayed by a couple of quarters. While disappointing of course, Ferrari is curating a set of extremely exclusive mechanical works of art and we are much happier seeing them take the time to do things right, rather than rushing to meet a self-imposed financial target.”
6. NIO Inc. (NYSE:NIO)
Number of Hedge Fund Holders: 34
NIO Inc. (NYSE:NIO) is a multinational automobiles manufacturer based in Shanghai. The company specializes in the development of electric vehicles. NIO Inc. (NYSE:NIO) has a market capitalization of $60.25 billion, and is ranked sixth on the list of the 10 best tech stocks to invest in.
By the end of the second quarter of 2021, 34 hedge funds out of the 873 tracked by Insider Monkey held stakes in NIO Inc. (NYSE:NIO) worth more than $2.06 billion. This is compared to 28 hedge funds in the previous quarter with a total stake value of approximately $1.32 billion.
On August 11, NIO Inc. (NYSE:NIO) issued its earnings report for the second quarter of 2021, with reported earnings per share at -$0.06, surpassing market estimates by $0.05. In addition to this, the company generated revenues of $1.30 billion, beating estimated revenues by $12.26 million.
On September 26, HSBC analyst Yuqian Ding reiterated a Buy rating on Nio, but lowered his price target to $47 from $69. However, the new price target still presents a significant upside compared to today’s stock price of about $33.
5. CarMax Inc. (NYSE:KMX)
Number of Hedge Fund Holders: 39
Based in Virginia, CarMax Inc. (NYSE:KMX) is a retailer of used vehicles, and engages in wholesale vehicle auctions. Ranked fifth on the list of the 11 best auto stocks to invest in, CarMax Inc. (NYSE:KMX) has a market capitalization of $20.72 billion.
For the second quarter of 2021, the company reported earnings per share at $1.79, beating market estimates by $0.68. The revenue for the quarter was reported at $5.37 billion, crossing forecast predictions by $294.06 million.
By the end of the second quarter of 2021, 39 hedge funds tracked by Insider Monkey’s database held stakes amounting to $1.6 billion in CarMax Inc. (NYSE:KMX).
On October 1, RBC Capital analyst Steven Shemesh lowered the his price target on CarMax Inc. (NYSE:KMX) to $156 from $160 but kept an Outperform rating on the shares, noting that the second quarter results of the company were “mixed”.
In the Q2 2021 investor letter of Giverny Capital, the fund mentioned their optimism regarding CarMax Inc. (NYSE:KMX), and the firm’s outstanding earnings report for the second quarter. Here is what the fund said:
“We’re quite optimistic about Carmax, our second largest position. For several years, investors have gravitated to a thesis that a handful of start-ups that sell used cars in an online-only format will end up with a lower cost structure than Carmax. This even though Carmax appears today to have lower costs to buy used cars for its inventory, recondition them for resale and transport them to stores – all problems that are not solved by a good web site. Carmax also amortizes its national advertising over a much larger sales base than competitors, giving it lower marketing expense per vehicle.
Nevertheless, Carmax was slow to respond to the emerging market for online car shopping. The good news is that it ultimately responded with vigor. Over the past few years it has seen operating margins contract as it invested in an omnichannel capability that lets customers buy fully online or do a portion of the transaction online and a portion in the store. Importantly, the customer chooses exactly which parts of the transaction to complete online or in store.
Now, it may be harvesting rewards. Carmax’s most recent earnings report was eye-popping. With its omnichannel transformation complete, Carmax reported that comparable sales rose 99% (on a pandemic-depressed comparison) in its May quarter, far ahead of expectations. The two-year comparable sales increase was 16%. Profit margins expanded and Carmax even suspended a test of lower prices in select markets, which was meant to measure elasticity of demand, because it was having no trouble selling cars at higher prices.
Carmax reported that 75% of transactions in the May quarter involved a customer completing a portion of the deal online, but only 8% were completed entirely online. Customers clearly like doing some parts of a transaction online and some parts in person. Importantly, Carmax now is the country’s largest online buyer of used autos from consumers, meaning it is acquiring inventory efficiently in the channel that the start-ups ostensibly were going to dominate.
Since releasing its earnings report in late June, Carmax shares are up sharply. Yet the stock’s high-teens PE multiple remains below the S&P average for a business with outstanding growth prospects and a likely return on equity above 25% this year. The used car market, like every other market, is overheated and will cool off at some point. But we feel good about our second-largest holding.”
4. Magna International, Inc. (NYSE:MGA)
Number of Hedge Fund Holders: 39
Magna International, Inc. (NYSE:MGA) is a manufacturing company based in Canada, that produces and supplies automotive systems, modules and components. Ranked fourth on the list of the 11 best auto stocks to invest in, Magna International, Inc. (NYSE:MGA) has a market capitalization of $23.07 billion.
The company issued its quarterly earnings report for the second quarter of 2021 on August 6, with reported earnings per share at $1.40, missing estimates by $0.01. Additionally, the reported revenues of $9.03 billion fell short of the market predictions by $248.8 million.
On September 26, Goldman Sachs analyst Mark DeLaney lowered the his price target on Magna International, Inc. (NYSE:MGA) to $102 from $105 and kept a Buy rating on the shares.
At the end of the second quarter of 2021, 39 hedge funds in the database of Insider Monkey held stakes worth over $576 million in Magna International, Inc. (NYSE:MGA), up from 34 hedge funds in the preceding quarter that held stakes worth more than $671.7 million.
3. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 55
Ford Motor Company (NYSE:F) is a multinational automobile manufacturer. Based in Michigan, the company engages in the sales of both, commercial and luxury vehicles through its brand names, Ford and Lincoln. The automobile company ranks third on our list of the 11 best auto stocks to invest in.
At the end of the second quarter of 2021, 55 hedge funds in the database of Insider Monkey held stakes worth $2.10 billion in Ford Motor Company (NYSE:F). This is compared to 49 hedge funds in the preceding quarter with stakes worth $2.19 billion.
For the second quarter of 2021, Ford Motor Company (NYSE:F) declared its EPS at $0.13, beating market predictions by $0.10. In addition to the EPS, the company reported revenues of $24.13 billion, surpassing forecast estimates by $1.13 billion.
On July 16, BofA analyst John Murphy raised his price target on Ford Motor Company (NYSE:F) to $18, from $17, and kept a Buy rating on the company shares.
2. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 60
Tesla, Inc. (NASDAQ:TSLA), known simply as Tesla, is famous for its design and manufacture of electric vehicles and clean sustainable energy solution and products, including solar panels and battery energy storage units, among others. The company has a market capitalization of $767 billion, and ranks second on our list of the 11 best auto stocks to invest in.
In the second quarter of 2021, Tesla, Inc. (NASDAQ:TSLA) reported an EPS of $1.45, beating estimates by $0.47. The company’s revenue in the quarter came in at $11.96 billion, an increase of 98.1% on a year-over-year basis, beating revenue estimates by $559.33 million.
At the end of the second quarter of 2021, 60 hedge funds in the database of Insider Monkey held stakes worth $9.29 billion in Tesla, Inc. (NASDAQ:TSLA).
On September 17, Wedbush analyst Daniel Ives kept an Outperform rating on Tesla, Inc. (NASDAQ:TSLA) with a price target of $1,000 on its shares.
In the Q2 2021 investor letter of Worm Capital, the fund stated their belief in Tesla, Inc. (NASDAQ:TSLA)’s long-term performance, despite underperforming in the second quarter. Here is what the fund said:
“Tesla underperformed in the quarter, but we maintain our high conviction in the long-term thesis on each business model. Much like art or writing, investment research is a continuous process—it never really ends. Prices can move in either direction in any given quarter, but our advantage often comes from knowing the businesses so well that short-term fluctuations in pricing shouldn’t affect our decision-making. On high conviction positions, this patience is often rewarded, which is why research is so valuable to our process…
..Tesla is in a class of its own. What many in the market seem to (still) not understand is that Tesla is not a car company so much as a complex manufacturing firm—with significant recurring software potential—growing, in our view, at a targeted rate of 50-100% YoY over the next several years. Unlike any other automotive firm in existence today, Tesla alone is a vertically integrated hardware and software business developing state-of-the-art manufacturing techniques that will revolutionize the auto industry (i.e. its Giga Presses, 4680 cells, etc.). It is a generational company and we anticipate it will eventually be the largest company in the world. Many of the conventional narratives around competition displacing Tesla’s lead are fundamentally flawed, and the many headlines surrounding Tesla’s approach to autonomy are frustratingly superficial. (As an aside, we highly recommend watching Andrej Karpathy’s, Tesla’s head of AI, his recent presentation from June: “Tesla details its self-driving Supercomputer that will bring in the Dojo era”)”
1. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 86
General Motors Company (NYSE:GM) is a multinational automotive corporation that designs and manufactures automobiles, through the multiple brands the company owns, including Chevrolet, GMC and Cadillac. The Michigan-based company has a market capitalization of $77.13 billion, and is ranked first on the list of the 11 best auto stocks to invest in.
At the end of the second quarter of 2021, 86 hedge funds in the database of Insider Monkey held stakes worth $7.41 billion in General Motors Company (NYSE:GM). The number of hedge funds that held stakes in the automotive manufacturing company remained the same for the first and second quarters of 2021.
On August 4, General Motors Company (NYSE:GM) issued its quarterly earnings report for the second quarter of 2021, with reported earnings per share at $1.97, crossing estimates by $0.14. Additionally, the company reported revenues at $34.17 billion, an increase of 103.64% on a year-over-year basis, surpassing predicted revenues by $4.49 billion.
On September 26, Goldman Sachs analyst Mark Delaney lowered the firm’s price target on General Motors Company (NYSE:GM) to $59 from $62 but kept a Buy rating on the shares.
Junto Investments, in its Q4 2020 investor letter, stated that the value of General Motors Company (NYSE:GM) is far greater than is reflected on the markets. Here is what the fund had to say:
“General Motors was the biggest gainer. We managed to buy it at a screamingly cheap price in the middle of March. A lot of interesting news has emerged about GM recently, including the new electric product delivery system BrightDrop and GM Cruise’s team-up with Microsoft Azure to commercialize self-driving cars in 2021. GM’s intrinsic value is crystallizing and the company is worth a whole lot more than is still reflected in the market.”
You can also take a peek at 12 Best Big Tech Stocks to Buy Right Now and 10 Stocks That Just Received Sell Rating from Analysts.
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Disclosure: None. 11 Best Auto Stocks to Invest In is originally published on Insider Monkey.
