With the Federal Reserve signaling a halt to interest rate hikes and potential rate cuts, the automotive industry is expected to witness substantial growth and expansion due to stimulating consumer demand, improving affordability, lower financing costs, and enhanced support for auto manufacturers.

With that in mind, investors could consider investing in top auto stocks Li Auto Inc. (LI), Credit Acceptance Corporation (CACC), and Garrett Motion Inc. (GTX) for a consistent stream of returns.

In 2024, new car sales are forecasted to hit 15.7 million, with improved availability and slower price increases. Hybrid vehicles are expected to increase their market share to 14% year-over-year this year, while EV sales are projected to grow to 9%, although momentum is slowing due to adjustments in production plans and increased inventory levels.

Besides, U.S. automakers and suppliers are ramping up hybrid vehicle production to meet growing consumer demand as sales of hybrids outpace electric vehicles. However, to help the cooling EV market, the White House is expected to issue vehicle CO2 emissions standards this month, designed to force automakers to increase the share of fully EVs they sell to as much as 60% by 2030.

In addition, global travel demand for business and leisure is boosting the car rental industry, with technological advancements like user-friendly booking apps driving growth by enhancing customer experience. The global car rental market is anticipated to grow at a CAGR of 11.2% by 2030.

Furthermore, the auto parts market is experiencing steady growth, driven by the demand for performance enhancements and the transition to electric and hybrid vehicles. The global auto parts market is projected to reach $755 billion by 2026 and is expected to grow at a CAGR of 7.5% by 2032.

Considering these conducive trends, let’s examine the fundamentals of the three best auto stock picks: LI, CACC, and GTX.

Li Auto Inc. (LI)

Based in Beijing, the People’s Republic of China, LI is a leading player in China’s electric vehicle sector, producing premium smart MPVs and SUVs. The company provides a range of services, including sales, after-sales management, technology development, and corporate management through various distribution channels.

On March 1, 2024, LI reported a 21.8% year-over-year increase in vehicle deliveries for February 2024, reaching 20,251 units, with cumulative deliveries totaling 684,780 by the end of the month.

The company further planned to launch new models, including the Li MEGA and 2024 Li L series, aiming to rebound monthly deliveries to 50,000 vehicles in March while maintaining 475 retail stores and 355 servicing centers across China.

During the fourth quarter ending December 31, 2023, LI reported total revenues of RMB41.73 billion ($5.88 billion), marking a 136.4% increase from a year-ago quarter. Its non-GAAP income from operations and net income grew 579.8% and 374.2% year-over-year to RMB3.86 billion ($544.10 million) and RMB4.59 billion ($646.30 million), respectively.

Moreover, the company’s non-GAAP net earnings per share attributable to ordinary shareholders rose 358.7% from the prior-year quarter to RMB2.11.

For the first quarter of 2024, LI anticipates delivering between 100 thousand and 103 thousand vehicles, reflecting a surge of 90.2% to 95.9% from a year-ago quarter. The company also expects total revenues to range between RMB31.25 billion (US$4.40 billion) and RMB32.19 billion (US$4.53 billion).

Analysts expect LI’s revenue to increase 71.4% year-over-year to $29.50 billion, accompanied by a projected 37.9% year-over-year rise in EPS to $2.20 for the fiscal year ending December 2024. Moreover, the company has surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.

LI’s shares have seen a remarkable 45.5% increase over the past year to close the last trading session at $32.86.

LI’s POWR Ratings reflect this strong outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.

The stock has an A grade for Growth, Sentiment, and Quality. In the Auto & Vehicle Manufacturers industry, LI is ranked #15 among 53 stocks.

To access additional ratings for LI’s Value, Momentum, and Stability, click here.

Credit Acceptance Corporation (CACC)

CACC offers financing programs to automobile dealers, exchanging money for servicing consumer loans and purchasing them from dealers. Additionally, it provides reinsurance for vehicle service contracts sold to consumers by dealers on vehicles financed by the company.

On February 28, 2024, CACC completed a $200 million asset-backed non-recourse secured financing. In connection with this transaction, the company conveyed loans valued at around $250.10 million to a wholly owned special purpose entity that will transfer the loans to a trust that will issue three classes of notes.

The financing is anticipated to have an average annualized cost of nearly 7.8%, inclusive of placement agent fees and associated expenses. It will revolve for 36 months, following which it will amortize based on the cash flows generated from the conveyed loans.

On February 17, CACC extended the $100 million asset-backed non-recourse secured financing that it entered on January 29, 2021, and to which it refers as Term ABS 2021-1. As per the amendment effecting the extension, the date on which the financing will cease to revolve has been extended to February 17, 2026, from December 16, 2024.

In the fourth quarter that ended December 31, 2023, CACC’s revenue increased 2.7% year-over-year to $366.10 million. The company reported an adjusted net income of $129.10 million and $10.06 per share, respectively. As of December 31, 2023, its total assets amounted to $7.61 billion, compared to its total assets of $6.90 billion as of December 31, 2022.

For the fiscal year ending December 2024, Analysts anticipate a marginal year-over-year increase in CACC’s revenue to $1.91 billion, with an estimated EPS of $39.68 for the current year. Also, the company topped consensus EPS estimates in three of the trailing four quarters.

CACC’s stock has gained 40.4% over the past year and 14.1% over the past six months to close the last trading session at $556.04. Also, the stock increased 1.5% intraday.

CACC’s POWR Ratings reflect its robust prospects. The stock has an overall B rating, translating to a Buy in our proprietary rating system.

The stock has an A grade for Quality and a B for Momentum and Stability. CACC is ranked #3 out of 20 stocks within the Auto Dealers & Rentals industry.

Click here to view CACC’s additional ratings for Growth, Value, and Sentiment.

Garrett Motion Inc. (GTX)

Headquartered in Rolle, Switzerland, GTX designs and manufactures turbocharging, air compression, and electric motor technologies for global OEMs and distributors, serving diverse industries. Its cutting-edge solutions cater to mobility and industrial applications, offering enhanced engine performance and efficiency.

On February 13, 2024, GTX authorized a $350 million share repurchase program until December 31, 2024, allowing flexibility for share buybacks through various methods, subject to market conditions and company discretion.

In the fourth quarter that ended December 31, 2023, GTX’s net sales and gross profit increased 5.2% and 17.4% year-over-year to $945 million and $189 million, respectively. The company’s adjusted EBITDA and free cash flow grew 3.6% and 3.8% from the prior-year quarter to $145 million and $137 million, respectively.

For the fiscal year 2024, the company anticipates net sales of $3.87 billion, with net income projected at $253 million. Additionally, its adjusted EBITDA is forecasted to reach $620 million, while net cash provided by operating activities is expected to be $420 million, with adjusted free cash flow estimated at $375 million.

Street expects GTX to report revenue of $962.50 million for the first quarter ending March 2024, and its EPS is expected to grow 95.8% year-over-year to $0.25 for the same period. For the fiscal year ending December 025, the company’s revenue and EPS are estimated to increase 5.6% and 28.1% from the prior year to $4.13 billion and $1.50, respectively.

The stock has gained 25.3% over the past nine months and 39.2% over the past year to close the last trading session at $9.52. Also, it increased 1% intraday.

GTX’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.

It has a B grade for Value, Stability, and Quality. In the A-rated Auto Parts industry, it is ranked #5 of 62 stocks.

In addition to the POWR Ratings stated above, access GTX’s Growth, Momentum, and Sentiment ratings here.

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LI shares rose $0.50 (+1.52%) in premarket trading Wednesday. Year-to-date, LI has declined -10.90%, versus a 8.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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