Three European auto stocks to drive growth

Current weakness in their stock prices, relative to their fair value and long-term prospects, provide an attractive buying opportunity, according to Morningstar equity research

Vikram Barhat 12 June, 2019 | 2:58AM

BMWThe global automotive sector appears to be caught in a perfect storm. The industry has been generating a spate of stock moving headlines including emission scandalsfinancial wrongdoing, the global pivot to EVs and restructuring. Compounding this is the less than cheery forecast by ratings firm Moody’s that recently cut global auto industry outlook from stable to negative, and says that global auto sales are likely to continue to weaken in the first half of 2019, before picking up pace in the second half of the year.

Amidst fears of no-deal Brexit and U.S.-China trade spat, the current U.S. demand has plateaued out. However, despite not growing meaningfully, U.S. sales levels remain strong, argues a Morningstar report, adding that while the demand in major markets may soften moderately, it will remain healthy provided there aren’t any major macroeconomic setbacks. “These insights lead us to conclude that automotive companies may potentially generate solid profits and returns for investors,” the report says.

Expectedly, the leading carmakers are steadily taking measures to better prepare for the changing automotive landscape and maintain their dominant positions. These measures range from controlling costs by cutting jobs, and shuttering plants to closely aligning their product offerings with changing industry trends and consumer tastes. The current weakness in their stock prices relative to their fair value and long-term prospects provide an attractive buying opportunity, and some margin of safety, for long-term investors with some appetite for short-term volatility, according to Morningstar equity research.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bayerische Motoren Werke AG ADR19.88 USD-1.75
Fiat Chrysler Automobiles NV9.05 USD0.56
Volkswagen AG ADR15.03 USD-3.20

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

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