At present most of us are staying home to do our part to help the NHS in its efforts to save lives. We’re not likely to drive much in the foreseeable future. But investors could still use this extra time indoors to do due diligence about car industry shares.
The market crash has pushed the prices of a wide range stocks to levels not seen in recent months. Many of them may now potentially be offering reasonable entry points. So what are some ways to invest in the industry?
Industry disruptors
The car industry is a large part of the our economy. The Society of Motor Manufacturers and Traders (SMMT), the carmakers’ trade body, provides valuable figures and updates on the state of the industry. It’s a good source to check out the latest developments, such as the number of new car registrations.
Automotive stocks are cyclical as they usually advance or decline with the wider economy. For example, UK new car registrations are down 44.4% in March as the stay-at-home economy hit car sales.
In addition to the economy, I’d also encourage you to pay attention to disruptive trends and emerging developments in the industry. They may include electric vehicles (EVs) and autonomous driving and present both an opportunity and a threat to many businesses.
Several companies that may be worth your attention are driver monitoring systems business Seeing Machines, telematics companies Trakm8 and Quartix, and cyber security firm NCC.
But even without investing in industry disruptors, you could still build a diversified portfolio with car links. Companies in the value chain would include vehicle manufacturers and suppliers, insurers, retailers, and tyre manufacturers.
FTSE 100 shares
Britain’s leading stock index, the FTSE 100, offers several possibilities for investors to consider. Many of our readers will be familiar with Auto Trader, which operates the UK’s largest digital automotive marketplace. The group specialises in both second-hand and new automotive sales, including cars sold by private sellers and trade dealers.
The law says that you must normally have at least third-party motor insurance if you drive or own a vehicle. And that is why insurers, such as Admiral Group, Aviva, and Legal & General, could be the next group of stocks to consider.
Melrose Industries, another FTSE 100 member, specialises in acquiring and improving underperforming businesses. It owns GKN Automotive which delivers mass production solutions for mobility.
I must note that a number of companies, including Aviva, have recently axed their dividends, at least for the rest of 2020. Therefore, if you are a passive income investor, you may want to pay attention to headlines regarding dividends.
FTSE 250 and AIM stocks
Investors can also find several other companies that are FTSE 250 or AIM-listed, the latter being the London Stock Exchange’s market for smaller companies.
National car dealerships and retailers, such as Cambria Automobiles, Lookers, Marshall Motor Holdings, Pendragon, and Vertu Motors offer another way to invest in the industry.
Are you instead looking for global automotive distribution, retail, and services companies with UK headquarters? Then Inchcape may well fit the bill. It generates over two-thirds of its operating profit from emerging markets.
Finally, contrarian investors may want to analyse the fundamentals of retailer Halfords and sports car maker Aston Martin Lagonda. Their shares had started declining long before the recent market crash.
