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4 Auto Stocks with Great Value for the EV Race

Zacks

In order to tackle air pollution problems, many countries are focusing on usage of electric cars. In fact, this ground reality has prompted many automakers to shift their attention from gasoline and diesel-automobiles to electric cars.

Per a report by International Energy Agency, the number of on-road electric vehicles rose to 2 million in 2016, which was almost non-existent even a few years back. This trend is expected to continue with aggressive targets to address climatic changes and reduce urban congestions in many countries.

At the same time, automakers are launching or planning to unveil new, practical and affordable versions of electric cars to cater to growing demand.

In Europe, demand of these vehicles is expected to rise owing to advanced technological changes, declining battery costs and strong government support. Per a report by Dutch bank ING Group, between 2017 and 2024, European customers will prefer buying more electric vehicles over other conveyance types.

Notably, China — the largest automotive market — will soon put a deadline to stop production and sale of gasoline-run cars with an aim to end carbon emissions by 2030. This plan is in line with the government’s mandate in June that compelled automakers to manufacture more electrically powered vehicles. (Read more: Autos Eye China's CO2-Free Drive to Push Electric Vehicles).

Currently, U.S. auto market is trailing among others but is expected to flourish with several electric vehicles being introduced in the market. As a matter of fact, the U.S. electric vehicle market witnessed a 32% annual growth rate between a period of 2012 and 2016 and will likely reach 40% in the next six years, per some published estimates Among other new vehicles, Tesla, Inc.’s TSLA recently unwrapped the Model 3 sedan specifically for the U.S. market might play a major role in doubling electric car sales in the country.

Screening the Stocks

Overall, the auto sector has been bearish so far this year. Considering the volatile environment of the sector, value stocks may prove to be most beneficial. It is important to find the right kind of stocks to capitalize on ample opportunities.

We have chosen the probable best bets with strong fundamentals to increase potential returns with the help of our VGM Score. A value stock implies stocks trading lower than its fair price or intrinsic value and thus, offers a significant upside potential. For this particular strategy, stocks with a VGM Score of A or B have been selected.

In addition, we have zeroed in on stocks with a low price/earnings (P/E) ratio as these can prove to be great bargains. A low P/E indicates decline in a stock’s price or an improvement in its earnings performance.

Top Picks

We have picked four stocks in the auto sector, expected to provide good returns over the long haul and perform well with the increasing demand for electric vehicles.

Honda Motor Company HMC is a leading manufacturer of automobiles and motorcycles in the world. It offers products ranging from small general-purpose engines to specialty sports cars. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The company holds a VGM Score of A.

Zacks Rank #1

P/E ratio: 9

BMW AG BAMXF is a leading German automotive manufacturer, headquartered in Munich, Germany. It designs, produces and distributes luxury vehicles, sports cars and motorcycles. It also offers premium financial and mobility services.

The company has a VGM Score of B.

Zacks Rank #1

P/E ratio: 7.4

Volkswagen AG VLKAY is another well-known German automaker, headquartered in Wolfsburg, Germany. It designs, manufactures and sells passenger and commercial vehicles, motorcycles and engines.

The company carries a VGM Score of A.

Zacks Rank #2 (Buy)

P/E ratio: 6.2

Daimler AG DDAIF is a German multinational automotive company, headquartered in Stuttgart, Germany. It is one of the largest manufacturers of premium cars and the largest producer of commercial vehicles.

The company has a VGM Score of B.

Zacks Rank #1

P/E ratio: 7.2

Challenges Abound, Too

In order to roll out new electric cars, automakers are currently making huge investments to develop and manufacture them. With sales still hitting lows, mostly due to higher prices and lack of fast-charging stations, carmakers are in a difficult situation to balance expenses without compromising margins.

With a view to curtailing expenses, auto companies are resorting to various initiatives. A few of these measures include outsourcing their component manufacturing rather than going for in-house production besides curbing costs.

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