Auto stocks have been on the rise so far in 2021.
Ford (NYSE: F) is up 30% year-to-date, General Motors (NYSE: GM) has gained 28%, and both are outpacing Tesla (NASDAQ: TSLA), which is still up 15% so far this year. All three are outperforming the S&P 500, which is up nearly 6% since the beginning of the year.
While both Ford and GM have warned that the global chip shortage could cut into 2021 earnings, Strategic Wealth Partners’ Mark Tepper said this week that it’s encouraging to see the legacy automakers “finally innovating” as they forge ahead on new electric vehicle models.
“These are two American icons that you really want to root for,” Tepper, the firm’s CEO, said. “The new Ford Bronco is a hot car. It’s really cool. And then you’ve got one of the biggest gas guzzlers in the history of Earth reemerging as an EV. Great turnaround for both of these companies.”
Last month, GM CEO Mary Barra and other company executives unveiled some major electric vehicle goals—as well as the possibility of flying cars—at the all-digital 2021 Consumer Electronics Show.
GM said its goals are for there to be zero emissions, zero accidents, and zero congestion. “The key to [this vision] is electrification,” Barra said.
Ford, for its part, has committed to spending roughly $20 billion on investments in EVs and autonomous driving technology between now and 2025. That’s about as big of a commitment, comparatively by size, as any other traditional auto maker.
But while these big-name car companies are racing higher, Tepper said focusing on the companies that are developing the technology that is going into new vehicles might be a better way to play the trend.
“What do all new cars have in common? It doesn’t matter if they’re EV or gas, there is more technology going into every single car every single year, so that’s the trend I want to play,” Tepper continued. “And I can play that through Aptiv (NYSE: APTV).”
Aptiv recently announced a new brain, or system architecture, for intelligent vehicles as well as its next-generation advanced driver assistance system (ADAS) products. ADAS is industry-speak for autonomous driving.
Aptiv supplies everyone in the industry, including Tesla, and Tepper says the company is “the bridge between tech and auto.” The company generates around $14 billion in sales per year. Its stock is up 18% so far this year, and more than 68% over the last 12 months.
Laffer Tengler Investments’ Nancy Tengler has her eye on two chip stocks that supply the auto industry.
“We’ve actually played this somewhat through our chip names that have a fairly significant portion of their revenue allocated to autos,” Tengler said, pointing to such names as Qualcomm (NASDAQ: QCOM) and Texas Instruments (NASDAQ: TXN).
“We’ve been overweight” these chip stocks, Tengler added. “We’ve been trimmers recently because those stocks have had a very good run… [Cars are] so automated and there’s so much technology. I do think that that trade continues for some time.”
As for which major carmaker is a buy right now, Tengler likes Ford.
“If you are determined to be in the auto space, Ford is probably the way you want to play this,” Tengler said. “On a relative price-to-sales ratio basis, it’s at a near-historic low in terms of what you’re paying for a future unit of sales.”
Ford got an upgrade from Argus analyst Bill Selesky this week from Hold to Buy, with a $14 price target – 22% higher than the price as of this writing.
“Our upgrade of Ford reflects our expectations for stronger consumer spending, helped by a new round of stimulus payments, low borrowing costs, and savings rates that have reached all-time highs,” Selesky wrote in a note.