According to the recent Federal Reserve report, consumer credit has jumped 9.7% banking on higher non-revolving credit in July. A significant rise in auto loans majorly contributed to this non-revolving credit growth. Moreover, higher educational loans also played an important role.
Total consumer credit soared $26 billion to reach $3.24 trillion in July. This is way above the consensus expectation of an increase of $17.3 billion. This also compared favorably with the increase of $18.8 billion in June. Impressive growth in the auto loans segment helped the non-revolving credit, the biggest contributor behind increased credit, to rise 10.6% or $20.6 billion to $2.36 trillion in July. This was the highest gain in almost a year’s time. The jump in July’s non-revolving credit was followed by the 8.8% or $16.99 billion increase in June.
Auto Demand: The Major Catalyst
The increase in auto demand is evident from the impressive auto sales report in August. According to Ward’s Automotive Group, auto sales on a seasonally adjusted annualized rate (SAAR) basis surged to 17.5 million units in August from 16.5 million units in July. This was the highest level since early 2006. Among the automakers, Chrysler topped in terms of year-on-year sales increase, while General Motors (GM) was leading in terms of absolute figure. (Read: U.S. Auto Sales Up 6% Y/Y in August, General Motors Leads)
What’s Driving Auto Sales?
Most of the recently released economic data came out positive, signaling economy’s rebound. The strong growth in the economy helped the consumer confidence in August to grow to the highest level since Oct 2007. According to recent Conference Board data, the Consumer Confidence Index increased to 92.4 in August from 90.3 in July.
Moreover, the recent decline in oil prices is also increasing demand in the auto sector. Starting from August, crude has been trading significantly below the major psychological threshold of $100 per barrel. The forecast of excess supply will keep prices under pressure this year which will help the auto sector to register impressive sales results. (Read: Crude Prices See Softness: 3 Oil E&P Stocks to Dump Now)
Meanwhile, auto sector also needs to thank the banks for sales growth. With the improvement in the general economic situation banks are now offering more car loans with lower interest rates and longer repayment periods. This has created a favorable credit environment for the consumers, leading to a rise in auto demand.
3 Auto Stocks to Buy Now
The trends indicate that Auto credit will surge further in near future. Amid this promising environment, here are three auto stocks that can enrich your portfolio:
Cooper Tire & Rubber Co. (CTB) manufactures and markets tires and related products. This Zacks Rank #2 (Buy) company operates through North American Tire Operations and International Tire Operations.
The company has current year EPS growth estimate of 54.8% compared to industry growth rate of 22.3%. The stock trades at an attractive P/E ratio of 11.28. The Zacks Consensus Estimate for the current year has been revised 2% upward over the last two months.
Delphi Automotive PLC (DLPH) is a manufacturer of vehicle parts and provider of electrical and electronic, powertrain, safety and thermal technology solutions to its automobile clients, all over the globe. The Zacks Rank #2 (Buy) company provides services using four segments which are Electrical / Electronic Architecture; Powertrain Systems; Electronics and Safety and Thermal Systems.
The company has current year EPS growth estimate of 15.6% compared to 10.9% for the industry. The stock trades at an impressive P/E ratio of 14.01. The Zacks Consensus Estimate for the current year has witnessed a 2.2% upward revision over the last two months.
Meritor, Inc. (MTOR) supplies drivetrain, mobility, braking and aftermarket solutions for commercial vehicle and industrial markets. This Zacks Rank #2 (Buy) company serves commercial truck, trailer, off-highway, defense, and specialty and aftermarket customers around the globe.
The company has current year EPS growth estimate of 96.5% compared to industry growth rate of 10.9%. The stock trades at a P/E ratio of 17.79. The Zacks Consensus Estimate for the current year has seen a 31.7% upward revision over the last two months.
Bottom Line
The favorable credit scenario and encouraging economic data will boost demand for auto as well as auto parts. These three top-ranked auto parts manufacturers should benefit from this trend.
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