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4 Auto Stocks On Track to Beat in Q2

Robust growth in earnings is always welcome. This provides tremendous impetus to a stock and increases investors’ confidence. Usually, earnings growth leads to price appreciation, which ensures more gains for investors.

That said, let’s take a look at the auto stocks that are slated to report results in the next couple of weeks. Per the latest Earnings Outlook, as of Jul 19, 54 S&P 500 companies have already declared their results. These companies have posted 11.9% year-over-year growth in earnings and a 5.5% rise in revenues. However, as of the same date, 10% of the companies from the Auto, Tires and Trucks sector have reported results with a year-over-year decline in earnings and revenues of -7.5% and -5.6%, respectively.

Second-quarter 2017 earnings and revenue growth rates for auto companies are expected to be in the negative territory. Auto stocks are expected to register -10.3% and -0.8% year-over-year decline in earnings and revenues, respectively. However, the S&P 500 companies are overall anticipated to record 7.2% and 4.5% year-over-year growth in earnings and revenues, respectively, during the quarter.

In fact, year to date, the Auto, Tires and Trucks sector recorded a 6.4% compared with the S&P 500’s return of 10.7%.

Auto Stocks: Speed Bumps

Of late, auto makers have been encountering myriad challenges, which in turn might hamper their performances in 2017 too. Problems of high inventory levels and vehicle recalls are eating into the profits of auto companies.

Auto behemoth, General Motors Company (GM) lowered the U.S. sales outlook for new vehicles in 2017. This paints a bleak picture for the industry in 2017.

Added to this, the U.S. government’s plans to exit North American Free Trade Agreement (NAFTA) and implementation of a border-tax system have dulled the prospects of the auto stocks. This would increase the cost of U.S. cars and threaten jobs of thousands of suppliers.

The Zacks Methodology

Despite the bleak auto sector outlook, there are some bright spots too. Some auto stocks are likely to record positive earnings surprise in the forthcoming results.

Figuring out such prospective stocks could be quite tough unless one applies the proper method. The Zacks methodology makes the task simple, by combining a favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) – and a positive Earnings ESP.

Our proprietary methodology, Earnings ESP, shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. And research shows that for stocks with this combination of rank and ESP, chances of a positive earnings surprise are as high as 70%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

4 Auto Picks

Here are four auto stocks that have the right combination of elements to deliver an earnings beat when they release their fourth-quarter results:

Cummins Inc. (CMI) has an Earnings ESP of +3.1% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy)stocks here.

Headquartered in Columbus, IN, Cummins is a leading global designer, manufacturer and distributor of diesel and natural gas engines, electric power generation systems, and engine-related components, fuel systems, controls and air handling systems.

The company is expected to report second-quarter 2017 results on Aug 1.

BorgWarner Inc. (BWA) has an Earnings ESP of +1.12% and carries a Zacks Rank #3.

Michigan-based BorgWarner is a leading manufacturer of powertrain products for major automakers. The company’s forthcoming financial results are expected to release on Jul 27.

CNH Industrial N.V. (CNHI) has an Earnings ESP of +12.5% and carries a Zacks Rank #2.

London-based CNH Industrial is engaged in designing, producing, marketing, selling, and financing agricultural and construction equipment, trucks, commercial vehicles, and buses worldwide. The company’s second-quarter 2017 financial results are expected to release on Jul 26.

Horizon Global Corporation (HZN) has an Earnings ESP of +2.99% and carries a Zacks Rank #3.

Troy, MI-based Horizon Global Corporation designs, manufactures, and distributes a range of towing, trailering, cargo management, and other related accessory products to the automotive aftermarket, retail, and original equipment channels worldwide. The company is expected to report second-quarter 2017 results on Aug 1.

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General Motors Company (GM): Free Stock Analysis Report
 
CNH Industrial N.V. (CNHI): Free Stock Analysis Report
 
BorgWarner Inc. (BWA): Free Stock Analysis Report
 
Horizon Global Corporation (HZN): Free Stock Analysis Report
 
Cummins Inc. (CMI): Free Stock Analysis Report
 
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