- Auto stocks got clobbered last year amid falling sales and an ongoing trade war with China.
- Wall Street analysts predict the sector could come roaring back this year, even possibly beating market benchmarks.
- UBS said that in past years when auto stocks trailed the market, they've come back nearly 30% — much more than strategists say major indexes are likely to rise.
Stock markets around the world have been in turmoil, and automotive equities have been among the worst hit.
In the past year, the Nasdaq OMX Global Automobile Index — a market-cap-weighted list of the world's 24 largest manufacturers — fell by 28%, compared with the benchmark S&P 500 index's 10% decline in the same period.
Still, many Wall Street analysts say the slump could soon rebound.
"In the 12 months following periods of greater than 20% underperformance, the US Auto Supplier Index has produced an average return of ~29%," Colin Langan, a UBS autos analyst, said in a note to clients on Friday.
The bank said that the index had trailed benchmark stock indexes by more than 20% five times since 2000, and that after every time it then came roaring back by an average of 29%.
By comparison, the S&P 500 should finish 2019 roughly 18% higher than current levels, according to a group of Wall Street strategists surveyed by Bloomberg. Even though that would be a robust return, it would still trail Langan's auto forecast by more than 10 percentage points.
Most of the growth will be fueled by macro trends
It's largely macro trends that have hurt the sector — and above all, President Donald Trump's ongoing trade war with China.
Also helping to bring on the end of an automotive cycle are oil prices beginning to creep up from record lows, and rising interest rates on loans.
Total sales in December hinted at another year just above the 17 million mark, government data released Friday showed — a significant slowdown from the sharp gains after the financial crisis.
"A commodity reversal which has mostly impacted OEMs but also some suppliers (TEN, ADNT)," UBS added, "could help investors get comfortable" thanks to raw-materials costs no longer being a negative.
Then there's the question of individual stocks. Analysts polled by Bloomberg had bullish targets on almost every major automotive equity in the US, Europe, and Asia. Even Tesla, whose stock tends to exacerbate any rift between bulls and bears, had a bullish average from Street analysts.
Major auto shows — beginning with Detroit in early January and followed soon after by stops in Los Angeles and New York — could be catalysts, offering new product launches and executives taking the stage before the public.
Joe Ciolli assisted with reporting.
