Surging Auto Sales Lifting Smallcap Auto Industry Stocks

No doubt everyone (Republicans and Democrats) can agree on the great news now coming out of Detroit: auto sales are surging (http://www.nytimes.com/2010/11/04/business/04auto.html?_r=1&scp=1&sq=nick%20bunkley&st=cse), at least in the U.S.  According to the New York Times and many other news outlets, October was the industry’s best month for new vehicle sales in two years. G.M. reported sales growth of 4.3 percent for the month compared to a year ago, but Ford and Chrysler really took off, with sales growing 19.3 and 37 percent for the month compared to October 2009.

One of the industry’s favorite metrics for demand- the Seasonally Adjusted Annualized Selling Rate (SAAR) – rose to 12.3 million, the highest it has been since September 2008 when the crash began, except for August 2009 when the “cash for clunkers” program offered federal rebates and skewed the numbers, according to the Times story.

More good news: Analysts and industry leaders expect this sales wave to continue through 2011.

Small cap companies in the broad automobile sector have to be celebrating the news. And some have already cashed in ahead of October, based on the 3rd quarter earnings reports that include results through the close of the quarter on September 30. Investors who jumped into this sector in late August have enjoyed remarkable gains.

For instance, Northville, MI-based Amerigon * (Nasdaq: ARGN, http://www.amerigon.com/), which makes a heated and cooled seat system now featured in more than 40 vehicle models manufactured by Ford, GM, Hyundai, Toyota, Nissan, Land Rover and Jaguar, just reported its best quarter ever with revenues of $30.5 million. CEO Dan Coker told a conference call audience that $100 million in annual revenue is “a goal we have had for awhile and we are very pleased that it looks like we’re going to get there.” As you might expect, Amerigon stock has been on a tear, peaking at $11.55, up from just more than $6 earlier this year.

Charlotte, MI-based Spartan Motors (Nasdaq: SPAR, http://www.spartanmotors.com), which makes motor vehicle chassis and bodies for OEMs, has seen its stock swing higher since dropping to $3.75 in late August. The stock is now trading at about $5.50 and the company in October reported solid growth in sales and earnings for the third quarter.

Racine, WI-based Modine Manufacturing Company (NYSE: MOD, http://www.modine.com/) manufactures a variety of thermal management products including radiators, engine and transmission oil coolers for the auto industry. Seeking Alpha on Nov. 7 (http://seekingalpha.com/article/235312-10-stocks-in-a-new-uptrend-being-chased-by-smart-money?source=yahoo listed Modine in a roundup titled “10 Stocks on the Upswing” noting that its stock price has grown by more than 54.5 percent in the past year.

Milton, GA-based Exide Technologies (Nasdaq: XIDE, http://www.exide.com) manufactures lead-acid batteries for transportation and industrial energy applications and its stock is following a similar trend. The price dropped to $4.14 in late August but has rebounded with the good news out of Detroit and this week hit nearly $7.40.

Oak Park, MI-based * Azure Dynamics (AZD.TO, http://www.azuredynamics.com/) may be one to watch. Azure supplies electric and hybrid drivetrain systems for commercial vehicles, most notably the drivetrain in the highly anticipated all-electric Ford Transit Connect which should begin selling in earnest in April 2011. The European launch is also expected in the second quarter of 2011. Azure stock currently trades at about $0.27.

* Denotes client of Allen & Caron (publisher of this blog)

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