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Auto Stocks Stage a Comeback Rally on Better-Than-Feared Results

Auto Stocks Stage a Comeback Rally on Better-Than-Feared Results

(Bloomberg) -- U.S. auto companies rallied on Wednesday as the initial rush of first-quarter results showed the industry, while shaken by the coronavirus pandemic, may not have been hit as badly as many had feared.

A standard gauge for the auto supplier industry, the S&P Supercomposite Automobiles & Components Industry Index, rose as much as 6.7%, while the broader S&P 500 Index climbed 3.1%. The biggest gainers on the auto index included Cooper-Standard Holdings Inc., American Axle & Manufacturing Inc., Adient Plc, Fox Factory Holding Corp., Harley-Davidson Inc. and Visteon Corp.

“We believe stocks are now starting to price in the possibility of auto demand not falling as far as feared,” Morgan Stanley analyst Adam Jonas wrote in a note to clients.

Despite Wednesday’s rally, auto stocks are still down significantly since mid-February when concerns about the virus began reverberating through the U.S. stock market. The auto index is down 27% since then, while the S&P 500 is 13% lower.

However, investor sentiment started improving earlier this month after market researcher J.D. Power said U.S. vehicle sales may not drop as drastically as seen in China or Western European countries in the first full month following their coronavirus outbreaks. Revised federal guidelines, that deemed car sales an essential service may have also boosted market confidence.

Resilient Businesses

First-quarter results from suppliers and dealers like Autoliv Inc., Veoneer Inc. and Sonic Automotive Inc. have shown the businesses were resilient amid the Covid-19 onslaught that has brought regular outdoor life to a virtual standstill.

“First-quarter revenue is coming in better than expected,” Baird analyst David Leiker said about auto suppliers. Leiker continues to recommend buying Aptiv, BorgWarner Inc., Lear Corp., Littelfuse Inc., Methode Electronics Inc. and Visteon stocks.

Even Ford Motor’s lackluster results and massive loss forecast had a small silver lining.

“Ford, widely seen as one of the weaker global carmakers in terms of financial strength, revealed it has secured sufficient liquidity to last through year end without selling a single car at wholesale,” Jonas pointed out.

©2020 Bloomberg L.P.