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Stock Strategist Industry Reports

U.S. Autos Are Not Doomed

Sales will be horrendous in the near term, but there’s value to be found.

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Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

The market’s rapid sell-off as a result of the coronavirus pandemic is leaving carnage in its wake, creating massive uncertainty about the timing or extent of a recovery. Fear, uncertainty, and a high likelihood of a recession are a disaster for U.S. auto stocks. However, we’ve seen distress before in 2008-09, so we are not afraid to make undervalued calls in this highly cyclical sector. In auto stocks, we think you make your money in recessions. Many companies, especially dealers, generated massive returns for anyone who bought them during the depths of the Great Recession. For example, Ford (F) reached distressed levels of $1.01 in November 2008 and rose to nearly $19 by January 2011. Dealer Asbury Automotive Group (ABG) increased 77-fold by late 2019 from its March 2009 low of $1.60, and by February 2020, CarMax (KMX) had risen nearly 18 times from its November 2008 low of $5.76. We see spring 2020 as a buying opportunity similar to 2008-09 because we refuse to accept that the current economic environment is permanent. However, we recognize that things are likely to get worse before they get better.

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David Whiston does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.