Nearly every industry has been hit amid the coronavirus pandemic and resulting economic shutdown.
One group that has been hit particularly hard is the automotive sector.
IHS Markit this week lowered its global auto sales forecast, saying that it expects vehicle sales in the U.S. to fall 26.6% in 2020 to 12.5 million units, the lowest level since 2010.
“The unexpected and sudden nature of the impacts of the pandemic are hitting the autos sector hard, with unprecedented levels of uncertainty around prospects for meaningful global recovery,” said Colin Couchman, executive director for global autos demand forecasting at IHS Markit. “Market fortunes are expected to be mixed, as delayed and destroyed demand interacts with massive global supply disruption.”
But even with the coronavirus-induced auto upheaval, there are some opportunities to be had.
“The miles-driven collapse has a big impact,” said Baird analyst David Leiker.
Leiker says his “best growth” ideas in the sector include Aptiv (NYSE: APTV), Gentex (NASDAQ: GNTX), and Visteon (NASDAQ: VC). All three have taken a beating this year, with Aptiv down -36% year-to-date, Gentex down nearly -20%, and Visteon down -44% so far in 2020.
According to Leiker, despite these stocks being crushed this year, Gentex offers “the best business model in the auto supplier space,” with 90% market share in key products, and boasts a debt-free balance sheet. While Aptiv and Visteon offer exposure to big trends in the space like vehicle sophistication, electrification, and autonomous driving.
Guggenheim analyst Ali Faghri, on the other hand, sees aftermarket auto stocks rising as the U.S. economy recovers, and says that aftermarket companies “are defensive and have historically outperformed in recessionary backdrops.”
In the aftermarket space, Faghri likes used car auction companies Copart (NASDAQ: CPRT), and Insurance Auto Auctions (NYSE: IAA), and also likes salvage company LKQ (NASDAQ: LKQ). Faghri also issued Buy ratings on O’Reilly Automotive (NASDAQ: ORLY), and Advanced Auto Parts (NYSE: AAP).
“These sub-sectors should also benefit from a quick normalization in driving trends,” Faghri wrote in a report this week.