Park These 6 Auto Stocks in Your Portfolio

Auto sales have been strong despite the pandemic, with increased demand as people avoid public transportation and from the trend for city dwellers moving to the suburbs. Several leading advisors and contributors to MoneyShow.com highlight timely automotive ideas including used cars and auto parts, as well as outdoors beneficiaries -- motorcycles and RVs. Mike Cintolo, Cabot Growth Investor We've always liked Carvana , which has been taking market share in the gigantic used car industry ($750 billion-plus of sales per year). The firm has been building a new, online, nationwide dealership that's thought of everything to make it easier (and more trustworthy) to buy a used car over the internet. A huge selection (more than 20,000 vehicles), a seven-day test drive period, 360-degree views of every car, a guarantee that no car has been in a prior reported accident, financing options and an ever-expanding distribution network (one- or two-day delivery available in many markets) have all caused Carvana's offering to be a hit. However, while expansion has been rapid over the years (sales up at 50% to 100% rates, number of markets served up to 261 from 78 two years ago, and it's now a huge buyer of cars from customers, too), the bottom line has been deep in the red, which has been part of the reason the stock has suffered many huge corrections (30% to 60%) along the way. Now, though, investor perception may have changed, thanks partially to the pandemic, which has supercharged business and should have lasting effects-sales grew 41% in Q3 and are forecast to accelerate a bit from here (expected to rise 47% next year), while EBITDA actually turned positive. And longer-term, management is sticking by its forecast of eventually selling more than two million vehicles per year (up from a 260,000 run rate in Q3) while EBITDA clocks in at 10% or so of revenues. All in all, Carvana may be moving from wild upstart to emerging blue chip in the eyes of big investors, and that's caused the stock to change character -- the shares mushroomed after the March low, and while CVNA hacked around for a while, it never gave up much of its gains and is toying with new highs. Some tightness or quiet trading could offer a solid entry point. Garrett Nelson, CFRA Research's The Outlook Headquartered in Fort Lauderdale, Florida, AutoNation, Inc. is one of the largest automotive retailers in the U.S. The company offers a range of automotive products and services, including new vehicles, used vehicles, parts and automotive services, as well as automotive finance and insurance products. AutoNation's stated aim is to be the best-run, most profitable auto retailer in the U.S. Our Buy opinion reflects a valuation we consider attractive both on an absolute and relative basis at current levels and a view that management and operational-related headwinds are behind the company. While U.S. light vehicle sales are poised to decline precipitously in 2020 due to Covid-19, we expect volumes to rebound sharply in 2021, and because AN has aggressively cut costs, the combination of revenue growth and margin improvement will likely translate to significant earnings improvement in the coming quarters. Longer term, we think the firm's plan to build over 100 pre-owned auto stores is likely to be a major growth driver. The basis of our 12-month price target of $80 is a P/E multiple of 12.0x applied to our 2021 EPS estimate of $6.65, a discount to AutoNation's 10-year average forward P/E multiple of 13.8x. Risks include lower valuation multiples for auto retailers, increased dealer incentive spending, changes in gasoline prices and interest rates, vehicle demand, as well as pricing for new and used vehicles. Richard Moroney, Dow Theory Forecasts LKQ Corp. is being upgraded to our Focus buy list. LKQ is an auto-parts distributor geared for the aftermarket, an area that looks attractive for a couple reasons. With potential vaccines becoming widely distributed in the coming year, Americans appear likely to begin driving more, adding wear and tear on their vehicles. In addition, economic aftershocks from the recession may continue, boosting demand for used cars, which require more upkeep. The stock's Overall quantitative score of 96 is bolstered by above-average ranks for six of seven categories. After a stretch of declining sales, LKQ appears poised to resume growing in the March quarter, while per-share profits are well positioned for growth acceleration in coming quarters. LKQ shares recently traded at 15 times trailing earnings, in line with their five-year median of 15 and below the S&P 1500 consumer-discretionary sector median of 21. At 13 times estimated 2021 earnings, the stock offers an 18% discount to its sector median. Taesik Yoon, Forbes Investor Motorcar Parts of America surged following its quarterly announcement in November 10; demand for vehicle replacement parts rebounding strongly fromm fiscal Q1. The automobile is emerging as the transportation mode of choice for activities such as work, shopping, appointments, and family vacations in today's Covid environment -- fiscal 2021 Q2 net sales rose 2.9% year-over-year to a record $154.7 million and came in $6.0 million above the consensus estimate. And with the company continuing to do an excellent job managing the increased costs arising from the safety and health initiatives necessitated by the pandemic, adjusted earnings climbed by an even larger 10.6% to 73 cents per share. This also set a new all-time high and crushed analysts' expectations for a 30.3% drop in profits to 46 cents per share. More importantly, while MPAA still refrained from providing specific guidance at this time, there are several reasons why the company believes it is well positioned for continued and sustainable top and bottom-line growth going forward. This includes the vast majority of consumers in MPAA's target market being unable to work from home and reticent to use mass transportation or ride share, which should keep use of personal vehicles for daily activities elevated for the foreseeable future. In addition, the fact that people generally keep their vehicles longer during recessionary times, bodes well for its aftermarket replacement parts and non-discretionary product offerings in the future. Additionally, the company is seeing demand for its benchtop testers and electronic testing products and subscription services continuing to rise. MPAA ended the quarter at $20.9 million of cash even after the company used essentially all of the impressive $19.4 million in free cash flow it produced during the period to further reduce debt by $18.9 million to $116.3 million. Given these positive trends it's no wonder that MPAA feels confident enough to start putting some of its cash balance to good use by resuming stock buybacks under its remaining $21.3 million authorization. We believe you should continue to follow the company's lead. Mark Skousen, Home Run Trader Founded in 1903 and based in Milwaukee, Harley-Davidson is an iconic American company that has virtually defined motorcycle culture. It offers a broad range of leading-edge, distinctive and customizable bikes in addition to accessories, riding gear and apparel. The company also provides financing, insurance and other programs to get customers on the road. Management is currently in the midst of what it calls The Rewire, a critical overhaul of the business. That means adopting a new operating model that eliminates duplication and increases speed across global operations. It also includes protecting value by reducing the price gap between new and used motorcycles. In addition, Harley-Davidson is focusing on its 50 highest-priority markets, streamlining its product portfolio and delivering its first Adventuring Touring motorcycle, Pan America. The idea is not just to sell more bikes, but to deliver profitable growth and shareholder value in the months ahead. Not that results are shabby now. Annual sales top $4.3 billion. Profits are growing at a 39% annual rate. And I estimate that earnings per share will nearly quadruple from $0.78 this year to about $3 in 2021. There is a political angle here, too. The Trump administration's protectionist policies against Europe and Canada invited retaliatory actions. Harley-Davidson was one of the companies hit worst by punitive countermeasures. But that is far less likely to be the case with a Biden administration. In short, this is a fast-growing company that is likely to report much-better-than-expected sales and earnings in the weeks and months ahead. Doug Gerlach, Investor Advisory Service Patrick Industries manufactures components and distributes building materials for the recreational vehicle (RVs). It marine products are targeted primarily at the recreational powerboat market. The RV and marine businesses address what Patrick labels its leisure lifestyle markets, which are benefiting from positive secular trends. During the pandemic, its leisure lifestyle markets have held up reasonably well as individuals have sought out safe outdoor recreational activities. The company reported good Q3 results as people choose to spend more time outdoors. RV revenue grew 36% and marine advanced 25%. Given the optimistic outlook for its various end markets, the company restarted its share repurchases in Q3. Despite the pandemic, the company also spent $125 million total on nine acquisitions through the first three quarters of 2020. We anticipate the company will grow earnings 15% annually over the next five years. This implies EPS of $7.74. Applying a high P/E of 17.8, we get a potential high price of $138. Using a low P/E of 8.5 and last year's EPS of $3.85 results in a low price of $33. This represents an upside/downside ratio of 3.3 to 1 and a projected high return of nearly 20% annually.

Park These 6 Auto Stocks in Your Portfolio

These timely automotive picks include ideas in used cars, auto parts, motorcycles and RVs.

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