In real estate you would rather have the worst house in the best neighborhood than the best house in the worst neighborhood.
Stocks are like that, too. At any given time there is a bull market somewhere, and these bull markets, like those in housing rehab, hygiene, or 5G, or gaming, you can buy the worst name in the group and do better than an amazing name in a sector that's floundering and gets no respect.
Right now, out of nowhere, we have one of the most raging bull markets I have come across, the bull market in anything auto, and while it seems we are late to the party, in a real bull it always feels like you are late to the party.
After years of being losers how did everything auto catch fire? Simple: the darned pandemic. Many people no longer trust mass transit. Many no longer want to carpool. Who can blame people, until we get a vaccine all we really have is social distancing and masks. The former is impossible in mass transit and the latter has been so mocked by the president that many feel they are a waste of time or worse, even if the overwhelming evidence says the opposite.
So what's the best way to play this bull? Let me give you a menu. First may be the car dealers, of which my two favorites are Lithia (LAD) , whom we just talked to last night, and Sonic (SAH) , which is busting out. AutoNation (AN) and CarMax (KMX) are not the best houses in the neighborhood but they can appreciate. The only one that I am not going to push hard is Carvana (CVNA) because I believe that Lithia, a national company that is now adopting the Carvana model -- touchless, digitized shopping with delivery -- will be unstoppable. I love the seven day guarantee.
Or you could go the auto parts. This market's been in the doldrums for so long that major manufacturers spun out their auto or auto related divisions as standalone companies. That's what draws me to Axalta (AXTA) for coatings and painting, and Adient (ADNT) for automotive seating. They are way too cheap. You can go bigger with Magna (MGA) , the Fisker anointed contract manufacturer or Lear (LEA) for interiors. How about upscale? That's Aptive (APTV) , which give you the brains of the car. A ton of software that does incredible well, including safety restraints. You can do hybrids with heavy auto businesses: Dow (DOW) or Dupont (DD) .
Or you can pick three semis with a ton of auto: NXP Semiconductor (NXPI) , Texas Instruments (TXN) - which flagged their auto business as being on fire, or even Nvidia (NVDA) which has fabulous artificial intelligence enabled dashboards that understand and learn you and infer what you are thinking. Mercedes uses it and you can tell the car that you are cold or that you need it warmer and it understands you.
You can go Tesla (TSLA) but I think that's a tech company that happens to make cars, or Fisker, a total spec on a great designer's SUV.
Or, you can go with the worst stocks in the best neighborhood, GM (GM) and Ford (F) . GM, which reports on November 5, and Morgan Stanley put out a good piece this week that talked about all the bells and whistles - think EV - but what matters to me is that the firm says that GM's "results are likely to be very strong".
But you might want to go for what we call in my Bull Market Fantasy show, the sleeper of the season, and that has to be Ford. This stock has been horrendous for years and years. What's different? A couple of reasons: the F-150 is selling better than ever, the Bronco's coming back, and the small and medium sized businesses love Ford trucks.
Those matter, somewhat. However, if you are buying the stock of Ford, which has been the worst house in the neighborhood, you are making a bet that Jim Farley, the new CEO, will no longer let this company lose money all over the globe in order to demonstrate that you can buy a Ford on any continent. Farley's a car guy. I think that if the family tries to make it so he has to lose money, he won't stay. He's about strength and discipline, and he's as embarrassed as everyone else that the stock's so low, although it did get to $8 today.
Me, I call Ford a flier. I like a good flier. Especially in this bull market.