- Bank of America said in a research note that automotive stocks might be at the beginning of a multi-year hot streak.
- Though a bunch of electric-vehicle companies have seen soaring valuations over the past year, the bank sees more upside this year in the shares of some traditional auto companies.
- The bank named Ferrari, General Motors, Ford, Magna International, and CarMax as its top stock picks in the automotive industry for 2021.
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As it did for so many, 2020 proved a challenging year for the auto industry. After COVID-19 forced American automakers to shut down factories and disrupted supply chains in the spring, US vehicle sales declined 15% from 2019.
Though the industry began to recover during the second half of the way, 2021 probably won't bring a rapid comeback, according to Bank of America, which predicted in a research note published on Monday that US vehicle sales will rise this year by just 2.5%, to 14.8 million units, from last year's 14.5 million units.
But as the auto industry slowly returns to its pre-2020 sales levels, now could be a good time to invest in automotive stocks, according to Bank of America, which said in the Monday research note that auto "stocks may just be at the beginning of a multi-year bullish trade." The bank has a "buy" or "neutral" rating on 80% of the automotive companies it covers.
Though electric-vehicle companies have attracted soaring valuations over the past year, Bank of America sees more upside this year in some of the auto industry's established giants.
These are the five automotive stocks BofA recommends for 2021.
Stock ticker: RACE
Bank of America's price target: $307
Why Bank of America recommends it: "Ferrari is a unique high-end luxury automaker, focused on design/production of luxury performance cars, along with its Formula 1 team and adjacent businesses. The company is an iconic asset, with resilient financial performance, significant intangible brand value, and a true high-end luxury status. We believe its balanced strategy of volume growth, price increases, and model introductions over our forecast period should drive outsized revenue/earnings growth."
Read more: 12 VC firms leading the $40 billion charge into self-driving-car startups like Zoox and TuSimple
Stock ticker: GM
Bank of America's price target: $72
Why Bank of America recommends it: "We believe GM's Core business is being managed very well despite ongoing global cycle/macro pressure, driven by its proactive retrenching efforts to profitable markets/segments and investment in product. In addition, the efforts across its Future businesses are an unappreciated upside factor, including electrification (Ultium, etc.), autonomy (Cruise), and mobility services (Cruise Anywhere)."
Stock ticker: F
Bank of America's price target: $12
Why Bank of America recommends it: "Our Buy rating is predicated on our view that Ford is just starting to hit a more sustainable inflection in earnings, driven by the combination of a very favorable product cadence in the all-important US/NA [North America] market and restructuring efforts with its Global Redesign. In the face of a tough cycle/macro, we believe this self-help story will start to get more credit among the investment community, while improved execution and communication may allow Ford's multiple to recover over time."
Read more: Tesla, GM, and Ford each have their own unique strategies for EV success — here's how they compare
Stock ticker: MGA
Bank of America's price target: $105
Why Bank of America recommends it: "We view Magna as one of the highest-quality automotive suppliers, and believe its solid proprietary technology and customer relationships will allow it to grow via consolidation and takeover business over time. Despite a tough cycle/macro, we believe MGA's expertise of the complete vehicle/ components provides it with a unique competitive advantage amid the ongoing industry evolution and technological advancement."
Read more: Magna's CEO explains why he's joining with LG to make a $1 billion play for the electric car space
Stock ticker: KMX
Bank of America's price target: $121
Why Bank of America recommends it: "Our Buy rating on CarMax is based on both a cyclical and secular view. First, we believe that the record levels of trade-in/off-lease vehicles returning to the market in 2021+ will increase supply into the used vehicle channel and drive vehicle churn, which should re-accelerate volume growth. Second, CarMax remains focused on new store openings and expanding its online presence, which should drive incremental growth."
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