Everyone has heard of companies such as Ford, General Motors, Hyundai, Volkswagen, Toyota, Honda, and the list goes on. But not many have an understanding of the investment side of these companies. Unlike other industries, the automotive industry has its own set of characteristics. Investors looking to invest in any of the automotive companies should be aware of what they are getting into because it can make a difference between making a profit or a loss.
Automotive companies are highly cyclical
Automotive companies are highly cyclical, which means if the economy is doing well, then generally, automotive companies will do well also. The reason for this is consumers generally make large purchases when the economy is humming along. During a recession, consumers are less likely to buy.
Below is a five-year stock market performance of six global automotive companies:
What is interesting to note here is the stock price of each of these companies above are fluctuating between its five-year high and lows (seesawing over time). That is why the buy and hold strategy will likely not work here.
Investors looking to invest in the auto industry should try to anticipate when the stock is at its low and sell it when its high. One way of determining this is to see if the economy is just recovering from a recession because generally car sales tend to pick up once the economy starts booming again.
Automotive companies are too big to fail
The automotive companies employ thousands of people and through its suppliers’ network, this number is probably in the hundreds of thousands. Employing so many people of this magnitude means these companies are too big to fail.
There are huge financial consequences if any of the automotive companies go under. This is why GM and Chrysler were given a government bailout in 2009 and emerged from bankruptcy with assistance from the U.S. government. For Chrysler, this bailout was not the first time; in 1979 the U.S. government had bailed it out once before.
From the investor’s perspective, this means that although the stock price of these companies may fall, it will never reach the point where the company goes to zero. So investors who are thinking about investing in automotive stocks will know that the likelihood of completely losing out on the investment is low.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
The Fintech company Credimi securitizes loans to SMEs for €170 million
With the proceeds of the securitization, Credimi will provide loans with a duration of 5 years and 1 year of...
Bond market rocks the Richter Scale
The average interest rate on U.S. Public Debt back in 2001 was 7%. Today, thanks to massive and unprecedented central...
Overall inflation remains low and conditions for the stock market remain positive
Gold bull and bear markets is the theme of our opening piece this week. And what does all this money...
Why gold is now very oversold
The NASDAQ Composite last saw its last BEV Zero on February 12th, and closed the week with a BEV of...
Energy companies: more than 6 billion for employee severance payments and litigation
Companies in the energy sector are facing a difficult year. Repsol recorded a net loss of $3.9 billion (€3.3 million)...
Crowdfunding7 days ago
Mazzanti manufacturer launches a STO after three equity crowdfunding campaigns
Crypto7 days ago
Chainlink (LINK) with big update and new possibilities
Featured7 days ago
Why cotton futures made a new weekly chart high close
Cannabis6 days ago
Más Madrid proposes responsible cannabis legalization for adults