Analysts Identify Stocks to Navigate the Automotive Slump

Analysts Identify Stocks to Navigate the Automotive Slump

Key Takeaways:
– Understanding the effects of UAW strikes can reveal investment opportunities in the automotive industry.
– Analysts foresee a particular trend that could impact the market.
– Earnings per share (EPS) expectations align with the identified trend, suggesting potential opportunities for investors.

As market participants grapple with the repercussions of the United Auto Workers (UAW) union strikes, which present a notable risk to domestic auto manufacturers and their profitability, savvy investors are delving deeper to uncover potential opportunities.

It’s not enough to simply acknowledge the UAW strikes. The goal is to comprehend how these strikes will impact the broader vehicle market and uncover potential pockets of value that others might overlook due to prevailing apprehension.

The Thesis: Navigating the Automotive Market

The underlying thesis revolves around two possible outcomes of the UAW strikes:

1. Higher prices for new vehicles to offset the costs associated with accommodating union strike demands. This scenario can potentially dampen an already sluggish new car market, particularly when factoring in increased financing costs.

2. Rejecting the demands of the strikers can lead to a significant shortage of vehicles, leaving consumers scrambling for available inventory.

Based on these scenarios, analysts and markets have identified areas where investors can allocate their capital to capitalize on the evolving landscape.

XPEL: A Promising After-Market Products Stock

Analyzing a comprehensive list of automotive stocks, analysts have found potential in the after-market products industry. XPEL (NASDAQ: XPEL) has garnered attention, particularly after experiencing nearly a 20% decline. Analysts remain optimistic about its future growth potential.

The rationale behind this interest is straightforward. Amid higher interest rates and extended waiting times for new car deliveries, consumers are considering maintaining their existing vehicles, leading to increased demand for aftermarket products.

XPEL’s strong financials, boasting a gross margin of 34% and net income margins of nearly 14%, highlight its pricing power and potential value. With a target price of $95.3, analysts project a 47.1% rally to reach its full potential.

CarMax: A Player in the Used Vehicle Market

CarMax (NYSE: KMX) is at the heart of the used vehicle market, another aspect of the industry that holds appeal. If new car prices remain high and new car availability is scarce, used cars become an attractive alternative.

Despite a recent decline of around 20%, analysts believe there’s a notable gap between CarMax’s current price and its true value. Additionally, they anticipate a 12.5% upside from today’s prices while expecting a 25.6% growth in earnings per share (EPS) over the next year.

Gentex: Another After-Market Products Contender

Gentex (NASDAQ: GNTX), within the after-market products sector, saw a more moderate decline of 9.6%. The company showcases robust financials with a net income margin of 17-20%, offering potential for market-beating returns for long-term investors.

Despite the relatively modest 3.5% expected upside, there’s a compelling case for these stocks. A 24% expected EPS growth in the next year underscores the underlying trend driving money and value towards this segment of the industry.

These three stocks, XPEL, CarMax, and Gentex, are interconnected by the common thread of this underlying trend. For investors who can hold for the long term and allow compounding to work its magic, these stocks present potential opportunities in a changing automotive market landscape.

Before considering any investment in Gentex or other stocks, conduct thorough research and due diligence.

Disclosure: This article is provided for informational purposes and does not constitute investment advice. It is essential to conduct your own research and seek professional advice before making any investment decisions.