Best Automotive Stocks to Buy In 2022: Your Complete Guide
After an explosive performance during the pandemic, automotive stocks are crashing in 2022. A semiconductor shortage, soaring inflation and higher interest rates are headwinds for the industry.
The NASDAQ OMX Global Automotive Stock Index (QAUTO) is down 22% YTD compared to the S&P 500 Index (SPX), down 19%. Meanwhile, the industry is undergoing a rapid transition as electric vehicles gain the spotlight.
According to recent research from Kelly Blue Book, EV sales hit a new record, reaching a 5.6% market share. At first, 5.6% may not seem like much. But, the 5% threshold is a major milestone.
The trend shows if a country hits the 5% EV sales level, rapid mass adoption follows. For example, 19 nations across Europe and Asia have experienced the phenomenon.
Higher gas prices are leading more people to consider an EV than ever before. But, with interest rates and inflation rising, not all companies will thrive. For instance, debt is more expensive, and materials are harder to get.
So which companies are best positioned to come out on top? Below you will find the top automotive stocks set to overcome the odds.
What Are the Top Automotive Stocks to Buy
No. 4 NIO (NYSE: NIO)
- YTD Performance: -38%
- Revenue Growth (YOY): 18%
As one of China’s leading EV companies, NIO is in one of the best positions to see growth speed up. China is the largest EV market, accounting for 35%. Not only that, but they also have the largest charging network.
For this reason, NIO has enjoyed significant growth over the past few years. Nio’s deliveries reached another record in the first quarter with over 25.7K cars delivered.
But lockdowns in China, its primary market, may impact Q2. The company expects between 23,000 and 25,000 deliveries, a slight drop from last quarter. With this in mind, they forecast business will return to normal, opening the door for an earnings beat.
Meanwhile, recent NIO stock news is dragging on share prices. A notable short seller claims the company is misleading investors with accounting tricks.
Although NIO has since denied the news, it could impact NIO stock in the near future. At the same time, the company sees strong demand for its new SUV model, which is expected to carry growth.
No. 3 Ferrari (NYSE: RACE)
- YTD Performance: -24%
- Revenue Growth (YOY): 26%
Although not an EV stock, Ferrari enjoys its fair share of growth. The high-performance sports car maker continues building momentum with its legendary brand name.
For one thing, Ferrari’s superior brand allows the company to increase prices while still seeing heavy demand. Ferraris are known for being high-priced, giving them the advantage of raising prices when needed.
At the same time, higher prices boost Ferrari’s margins. As a result, the company has some of the highest margins in the industry. In the first quarter, Ferrari’s EBITDA margin was 35.6%.
On top of this, Ferrari has strong ties to Formula-1 (F1) racing. The company earns revenue through sponsorships. With this in mind, Ferrari continues developing the latest high-performance tech.
Demand for Ferrari’s are reaching record levels as the company broadens its market. With a historic brand name and rising demand, Ferrari is achieving significant cash flow. As a result, the company pays a dividend (0.74% yield) to investors.
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What to Know When Buying Automotive Stocks
Investing in automakers is not easy. Although they make a lot of money from expensive purchases, production is also costly.
With material costs high, it can cut into already slim margins. The top automotive stocks above are well-positioned in the industry to continue their success. With strong market positions, innovative vehicles, and superior business models, these companies are worth adding to your watchlist.
With the transition to EVs underway, every company is dedicating resources to earn their share. But not every company will be successful. There will likely be clear-cut winners and losers in the end.
Nonetheless, Tesla, Nio, Ford, and Ferrari are all positioning themselves for future success. Although they may have different business models, the goal is clear, get to the top of your market and stay there.
The best automotive stocks to own will continue outshining the competition. That said, these companies are winning the battle so far.
