Auto Sales Drop In Q1: Should You Buy ETF & Stocks?

The U.S. auto industry saw a rough start to 2019 with a slowdown in the first quarter given higher interest rates, rising vehicle prices and the threat of a global slowdown. Nearly every major automaker reported decline in car sales last quarter.

The effects of the government shutdown and a pullback in the U.S. stock market at the end of 2018 also took a toll on the quarter’s sales. Additionally, the shift in consumers’ preference from passenger cars to larger, more comfortable pickup trucks and SUVs remained a drag on sales in the quarter.

Of the six major American and Japanese automakers, Nissan Motor (NSANY - Free Report) witnessed a sharp drop of 12% last quarter, followed by declines of 7% for General Motors (GM - Free Report) , 5% for Toyota (TM - Free Report) and 3% for Fiat Chrysler (FCAU - Free Report) . However, Honda (HMC - Free Report) sales rose 2% in the first quarter. Ford Motor (F - Free Report) will reveal its quarterly sales number on Apr 4. Analysts estimated an industrywide annual sales rate of 16.7 million for Q1 - the slowest quarter since Q4 2014.

However, the prospects for the auto industry seem bright going into the spring selling season despite falling passenger car sales and intensifying competition in the high-margin SUV market. This is especially true as a robust economy and strong labor market will encourage consumers to buy more vehicles. Additionally, boost in housing sales and lower lending rates will also drive demand for new vehicles. Further, the Fed’s dovish tone that it will not raise interest rates this year will lead more consumers to avail loans while buying homes.  

Moreover, the auto sector has a compelling valuation with a P/E ratio of 9.24, the lowest of all the 16 Zacks sectors. This could lead to an upside in the stocks this year. In order to tap the bargain price, investors could take a look at the pure-play ETF and a few stocks that could be attractive picks this year:

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