As the Detroit Auto Show kicks off this week, optimism for the world’s car makers has not been higher since the onset of the 2008/2009 financial crash. Signs of a recovering North American recovery, coupled with galloping auto demand from emerging markets, have boosted industry confidence for 2014 and beyond.
Indeed, research house IHS opined last month that they expect global automobile demand to rise to 85m vehicles this year, up from 82m in 2013. And forecasts are for off-take to keep driving higher, culminating in annual demand of 100m-plus vehicles per year by 2018.
With this in mind, I have identified three great investment that I believe should deliver stunning returns from a rapidly expanding car market.
GKN
Engineering component colossus GKN (LSE: GKN) is a massive player in the aerospace and automobile sector, but it is the latter group that creates the bulk of earnings, driving more than six-tenths of group turnover. Particularly encouraging is the firm’s heavy exposure to the surging premium and luxury car market, the growth potential therein underlined by BMW sales hitting a record 1.7m units last year.
City analysts expect GKN to generate earnings growth of 17% and 11% in 2014 and 2015 correspondingly, creating P/E ratings of 12.6 and 11.4 and providing a discount to the prospective average of 12.8 for the complete automobiles and parts sector.
Trifast
Fixtures and fastenings specialist Trifast (LSE: TRI)is a top-tier supplier to the world’s largest auto and electronics manufacturers. Its niche products range is under constant development to meet the need for fewer, and lighter, materials in the car-building industry. The firm carries out the vast majority of manufacturing in Asia, putting it at the coalface of these increasingly-important car markets and allowing it to provide bespoke product support and development at the drop of a hat.
Forecasters expect earnings to grow 11% and 7% in the years concluding April 2014 and 2015 respectively, leaving the firm dealing on P/E ratings of 15.1 and 14.1 for these years. This compares extremely favourably with an average forward multiple of 19.6 for the general industrials sector.
ETF Securities Physical Palladium
Palladium is a critical component in the construction of autocatalysts where they are used to clean up exhaust emissions. A great way to play rising prices here is through exchange-traded fund ETF Securities Physical Palladium (LSE: PHPD).
Palladium is in great shape to rise not only due to rising car volumes, but emissions legislation across the globe are requiring greater loadings of the metal in catalytic converters to reduce the carbon footprint. As well, palladium is also increasingly being used as a substitute to the more-expensive platinum in diesel cars due to recent technological breakthroughs.
Bank of America-Merrill Lynch expects palladium to average $813 per ounce in 2014 — up from $734 at present — before marching to $850 next year.
