6 Ways to Profit from Rebounding Global Auto Sales

The global automotive industry has rebounded strongly in the wake of the 2008 financial crisis, which prompted the Canadian and U.S. governments to bail out General Motors and Chrysler.

Pent-up demand after the recent recession, improving U.S. housing markets, the high cost and shortage of used vehicles in the U.S., and rising middle-class populations in emerging markets are all boosting worldwide sales of new vehicles.

In 2013, global auto sales hit a record 82.8 million vehicles, up 4.2% from 79.5 million in 2012. Sales could move as high as 85 million in 2014.

Sales in the key U.S. market rose 7.6% in 2013, to 15.6 million vehicles from 14.5 million.

Global sales slowed at the start of 2014, but regained their strength in March and April. The increase was driven by increases in Asia, and especially Japan and China, an ongoing recovery in Western Europe and improvement in the U.S., following several months of severe winter weather.

The average age of vehicles on the road in the U.S. is now at a record 11.4 years. That adds up to a lot of pent-up demand for new vehicles. U.S. sales in 2014 could top 16.3 million.

Sales in Canada hit a record 1.74 million vehicles in 2013, up 4.2% from 1.67 million in 2012, and could move up to over 1.76 million this year.

Here are six stocks that will profit from rising auto demand:

(Toronto symbol LNR; TSINetwork Rating: Extra Risk) gets 80% of its revenue by making engines, transmissions and other precision-machined parts for automakers. The company has plants in North America, Europe and Asia.

The remaining 20% of Linamar’s revenue comes from its self-propelled, scissortype elevating work platforms, which it sells under the Skyjack name, plus consumer products, such as lawn mowers and cargo trailers.

The company continues to benefit from strong car sales. Rising construction activity has also prompted contractors to replace their older Skyjack platforms.

Linamar now gets 64% of its revenue from Canada, 15% from Europe, 10% from the U.S., 8% from Mexico and 3% from Asia.

The stock has gained 116% in the past year, but still trades at a reasonable 14.3 times Linamar’s projected 2014 earnings of $4.27 a share. The company recently raised its quarterly dividend by 25.0%, to $0.40 from $0.32. The shares now yield 0.7%.

Linamar is a buy.

(Toronto symbol CFN; TSINetwork Rating: Speculative) provides car loans to consumers who can’t meet the criteria of traditional lenders, like banks.

In September 2013, Carfinco expanded into the U.S. through its $9.5-million purchase of Persian Acceptance Corp., an automotive lender that also caters to less-affluent borrowers. The acquisition boosted Carfinco’s loans outstanding by about 22%.

In the latest quarter, Carfinco’s revenue rose 29.6%, to $24.9 million from $19.2 million a year earlier. The company loaned $46.0 million, up 14.8% from $40.1 million.

Even so, earnings per share fell 5.0%, to $0.19 from $0.20. However, the decline was mostly due to one-time costs related to the Persian Acceptance purchase.

Carfinco is counting on its well-established dealer network and investments in Internet loan-approval technology to maintain its growth.

The company’s monthly dividend of $0.04 yields a high 5.7%.

Carfinco is a buy.

(New York symbol F; TSINetwork Rating: Extra Risk) is the second-biggest carmaker in the U.S., and the world’s fifth-largest.

The company continues to benefit from its restructuring plan, which it implemented in 2005 to deal with its falling sales and market share. In the years since, Ford has sold its Jaguar and Land Rover luxury car divisions, closed factories and laid off workers.

Ford plans to launch 23 new car and truck models in 2014, compared to just 11 in 2013. That will add to its costs, but the new models will help Ford maintain or increase its share of the highly competitive global auto market. As well, the company’s improving earnings have let it cut the deficits in its employee pension plans by about 50%.

Thanks to its improving financial outlook, Ford recently raised its dividend by 25.0%. The new annual rate of $0.50 a share yields 3.1%. The stock trades at a low 12.0 times the $1.33 a share it will probably earn in 2014.

Ford is a buy.

(New York symbol TM; TSINetwork Rating: Above Average) is the world’s second-biggest automaker by sales. Toyota also makes industrial equipment, such as forklifts and prefabricated housing. Like most carmakers, it offers vehicle loans through its financing division.

In 2013, the company sold 2.24 million vehicles in the U.S. That’s up 7.4% from 2.08 million in 2012.

Part of this success is due to strong demand for Toyota’s low-emission hybridpowered cars, which use both gasoline and electricity. Since it first starting selling hybrids in 1997, the company has now sold 6.1 million of these vehicles.

Toyota now sells 24 hybrid car models, and one plug-in hybrid model, in over 80 countries. Over the next two years, it plans to launch 15 new hybrid vehicles. That should help it maintain its leading 50% share of the fast-growing hybrid market.

Toyota should earn $11.91 per share in the fiscal year ending March 31, 2015. The stock trades at a low 9.2 times that estimate. The stock yields 2.3%.

Toyota is a buy.

(New York symbol HMC, TSINetwork Rating: Above Average) is Japan’s second-largest carmaker and the world’s biggest motorcycle manufacturer.

The company sold 1.53 million cars and trucks in the U.S. in 2013. That’s up 7.2% from 1.42 million in 2012. Honda continues to see strong demand for its Civic compact and Accord mid-sized cars. As well, it sold over 300,000 of its CR-V sports utility vehicle per year for the first time in its history.

Honda recently launched new models of its motorcycles in fast-growing markets like India and Indonesia (Asia accounts for 84% of its total motorcycle sales). As a result, it sold 4.3 million motorcycles in the three months ended December 31, 2013, up 11.4% from 3.8 million a year earlier. Sales in Asia should continue to improve now that Honda has started making and selling motorcycles in Bangladesh.

Honda trades at 9.6 times the $3.62 per share that it should earn in the fiscal year ending March 31, 2015. The stock yields 2.3%.

Honda is a buy.

(Nasdaq symbol NSANY; TSINetwork Rating: Above Average) is Japan’s third-largest carmaker.

The company continues to profit from rising sales in China. Nissan reports that its Chinese sales jumped 70.4% in December 2013, to a record 134,200 vehicles. That raised its total 2013 sales in the country by 17.2%, to 1.3 million.

Car sales growth could slow to 8% to 10% in China in 2014, depending on government policy. Automobile manufacturing is an important part of the country’s economy and offers higher-than-average-wages. However, cities like Beijing and Shanghai now suffer from heavy smog. That could prompt the Chinese government to limit new-vehicle registrations.

Nissan trades at 9.2 times the $1.95 per share that it will probably earn in the fiscal year ending March 31, 2015. The stock yields 3.3%.

Nissan is a buy.