The June Review

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Auto Stocks Surge — Here's an Even Better Play

We've all experienced sticker shock the last few years with rising prices and many items in short supply after the pandemic.

The term “sticker shock” actually came out of the auto industry about 40 years ago. Car prices were rising then, too, and those price stickers on the back windows caused eyes to bug out and shoulders to sag.

And they're doing it again.

Car prices have generated as much or more sticker shock than anything else in recent years.

The automaking industry was heavily impacted by supply-chain problems during the pandemic. Parts were extremely difficult to come by, which made cars hard to make. I know of one dealer who said cars were sitting on lots mostly done but waiting for computer chips to arrive.

This roadblock (so to speak) sent prices higher. The average price for a new car right now is a whopping $48,000. That's 120% higher than in 2000 when the average cost was $21,850, according to Statista.

But… inflation is coming down, and we're also starting to see car prices ease as supply-chain issues finally resolve and inventory becomes more plentiful. We're even starting to see incentives again, like in the “old days” just a few years ago. I even saw some 0% financing offers, which is pretty remarkable in this time of higher interest rates.

Lower prices and pent-up demand might be enough to pull sales up off an 11-year low in 2022. Total new vehicles sold last year came in just under 14 million, well below pre-pandemic levels of more than 17 million and the worst since 2011, when the economy was coming out of the Great Recession.

Shares of the biggest U.S. automakers have also come alive, especially in June. Ford (F) surged 25%, with Toyota (TM) and General Motors (GM) both popping around 15%.

Should investors jump on the momentum? Or is it a nice little run that can't last?

Let see what my data shows. And I'll tell you about an even better auto-related stock…

Staying Cautious on the Big Three

Those three companies — General Motors, Toyota, and Ford — are the Big Three when it comes to U.S. market share.

GM sold 17.1% of new vehicles in the U.S. last year, followed by Toyota at 15.2% and Ford at 13.9%.

Their stocks may be on the move now, but if they don't have the necessary ingredients to keep them moving higher — superior fundamentals, strong technicals, and Big Money flowing in — then I would be leery of buying them here.

Consider me leery.

It's possible these stocks could continue to run, but the data doesn't show enough confirmation yet. Before I invest in any stock, I want the odds firmly in my favor. Otherwise, it's merely a guess.

That's the whole purpose of the Quantum Edge system. Back-testing through 33 years of historical data show that highest-ranking stocks produce profits about 70% of the time. That's the probability I want in my investments.

These three automakers are not among the highest-ranking stocks.

All three have Quantum Scores around 60. That's my proprietary ranking that tells us on a quick reading whether a stock is worth our attention — and our money.

Ford scores the highest, at 62.1. That's not bad, but it's not elite.

More concerning, Ford's fundamentals rate a lowly 33.3. Sales growth is okay, but earnings are expected to shrink over the next one and three years. The company's profit margin is slightly negative. And debt is troublingly high, at more than four times equity.

Here's a snapshot of the Fundamentals section in my system:

Source: MAPsignals.com
That's not exactly your typical recipe for higher prices.

F has trended higher after a better-than-expected quarterly report in early May. Shares also got a lift from a recent $9.2 billion loan from the government to build plants that manufacture batteries for electric vehicles.

But the data tells me there are still too many headwinds to invest right now… especially when there are much stronger opportunities out there.

It's much the same story for GM (56.9 Quantum Score) and Toyota (58.6 Quantum Score):

GM's fundamentals are the best of the three, with a 50 rating, which is as middle-of-the-road as you can get.
Toyota's technicals are robust, at 73.5, but its Fundamental Score is just 37.5, barely better than Ford's.

Current momentum is strong, but all three have potentially tougher roads ahead with sluggish or negative sales and earnings growth, high debt, and low profit margins.

But…

An Under-the-Radar Winner

What about a company with a super strong Quantum Score of 87.9… and an equally impressive Technical Score of 88.2 and Fundamental Score of 87.5?

Now we're talking.

This isn't an automaker with high debt and heavy factory, labor, and equipment costs. It facilitates buying and selling cars, much of it online.

This is a smaller, lesser-known business than the big-name automakers, but it provides critical support in multiple avenues of selling used cars.

The company is Copart (CPRT). And it's a powerhouse in my Quantum Edge system.

It also hit a new all-time high on Friday, and it's one of our biggest winners in my Quantum Edge Pro portfolio, advancing 30% in a little over three months.

Copart has spent decades as a leader in the used-car market. It specializes in online auctions and vehicle remarketing services. It sells cars and trucks to licensed vehicle dismantlers, rebuilders, repair licensees, used-vehicle dealers, exporters, and even to consumers.

This may seem like a fairly straightforward business, even dull, but Copart's stock is an absolute beast. I've seen 15 Big Money buy signals just in 2023 so far. And, just as impressive, CPRT has appeared on my elite Top 20 list eight times this year. Institutions and hedge funds pay for this list that showcases the best stocks in the market.

Source: MAPsignals.com
Copart is far above where I recommended my Quantum Edge Pro readers buy it, but the data indicates more upside ahead for us to build on our already big gains. It's a stock worth considering, especially on a pullback.

In fact, Copart is exactly the kind of stock I look for and recommend to my readers. Unlike Ford, GM, and Toyota, it has powerhouse fundamentals, strong technical momentum, and Big Money is pouring in.

That's how to put moneymaking odds firmly in your favor.

Talk soon,

Jason Bodner
Editor, Jason Bodner's Power Trends

P.S. Back when I was on Wall Street, I saw how easy it was for the rich to get richer… and how impossible it was for the little guy to keep up.

That's why having a “data edge” is critical.

With the new developments in AI, it's clear to me that anyone who doesn't get on the right side of the every-growing Data Divide is going to get left behind.

Using the right data in the right way can put the odds firmly in your favor.

You can learn more here about putting this powerful data edge to work for you.

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