This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Auto Industry Renaissance Is for Real

Stocks in this article: GM F

NEW YORK ( Stockpickr) -- After a gut-wrenching industry downturn in 2009, the auto industry began to stage a remarkable recovery in 2010, and investors began to look further down the road to even more gains. Almost every company shed a huge amount of fixed costs and looked poised for record profits as industry sales volumes slowly rebounded.

Shares of Ford Motor (F), for example, quickly surged to nearly $20 by early 2011. And GM's (GM) late-2010 IPO saw such a hearty reception that investors scored a quick 20% gain in just a few months. Many auto parts suppliers also saw their shares rise up to fresh post-crisis highs.

And then, the bottom fell out -- again. Ford, GM and those suppliers have seen their stocks fall 30% or even 40% from those peaks over the last year as investors suddenly lost their enthusiasm for this resurgent sector.

>>5 Cash-Rich Stocks to Buy in 2012

Remarkably, the auto industry's outlook is even brighter than it was a year ago, and for investors willing to ride out the storm, major gains can be made.

For specific auto industry stocks to consider, check out " 5 Cheap Stocks for an Auto Industry Renaissance."

The Leverage of Volume

After selling 16 to 17 million units annually, the auto industry suffered a massive shock as industry volumes fell to just 10.4 million. Decent profits morphed into huge losses, sending some players into bankruptcy, while others barely stayed afloat. Many auto parts suppliers saw their stock move below $1.

But that shock may have been the best thing to ever happen. In an industry known for bloated cost structures and barely competitive products, the systemic shock led to a wave of cost cuts and better product line-ups.

Just a year after the nadir of the economic crisis, profit margins started to sharply rebound, and with lower costs in place, those were on path to reach record levels in just a few short years. Though industry sales rose just 11% in 2010 to 11.55 million units, almost every industry player managed to move back into the black.

Ford, as an example, saw operating profit margins rebound to 5.8% that year, the company's best showing in a decade. The company's stock rallied in 2010 as investors started to anticipate how much higher those margins could rise as the auto industry got back on its feet.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs