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No doubt about it, the automotive industry is huge. Almost everyone knows the top automotive brands, and we all have an opinion on the best cars. Because of the industry’s visibility, automotive stocks have attracted investors for decades–and will continue to for decades to come. This post covers automotive stocks and the best ways to invest in them. Here’s how to go about it.
Understand Why You Want to Invest
Before you spend all your money buying automotive stocks, think about why you’re investing. Let your financial priorities determine how you invest and if investing in auto stocks is the right decision. It takes years to see significant returns from the stock market, so investing may not be the best option if you want to make money quickly.
Evaluate the Automotive Stock
Automotive stocks are classified as consumer durables. The sector includes companies that make consumer products that are designed to last for more than a few years–like washing machines, vehicles, and furniture.
Before investing, take time to understand how economic cycles affect automotive companies. Find out the strategies the companies use to maximize profits and to stay competitive during economic highs and lows.
Automakers and auto suppliers have cyclical stocks. This means that their profits rise and fall with consumer confidence. When people and businesses are worried about the economy, they postpone buying new vehicles.
Auto sales’ cyclicality is very important to investors because profit background-color: #ffffff; padding-top: 4pt; padding-bottom: 6pt;”>Study the Competition
The automaker with the newest products always gets the highest profits. For example, Toyota produces new car models every year or redesigns old models. Automakers whose stocks perform well constantly invest to ensure they have a steady flow of new products in their pipeline. Dealerships like Post Oak Toyota quickly stock the vehicles, making them readily available to car buyers.
Take time to identify automakers and parts suppliers making big investments in future technologies such as autonomous driving systems and electric vehicles. Experts believe these technologies will help auto companies stay competitive now and in the future.
Check the Auto Company’s Cash Reserve
During the 2007-2009 recession, most auto companies cut future spending sharply. Ford, Hyundai, and a few other companies didn’t, but they had new products when the recovery began and were able to quickly gain market share.
The auto industry learned an important lesson from the recession: having a cash reserve is important. Now, most large automakers have substantial cash hoards to keep operations running when the next recession or pandemic happens.
Many global auto companies also pay dividends to shareholders. Paying dividends sends a powerful message about a company’s future performance, and that’s why some auto companies still pay dividends during a recession. The ability and willingness to pay dividends regularly also demonstrates financial strength. So, invest wisely to make the most of your money.
