These Retooling Car Stocks Should Appreciate

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the auto industry to thrive over time as our growing global population demands wheels, and especially as we work our way out of our recent economic slowdown, the First Trust Nasdaq Global Auto Index ETF (Nasdaq: CARZ  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The First Trust ETF's expense ratio -- its annual fee -- is 0.70%. The fund is very small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF is too new to have a sufficient track record to assess. It's the future that matters most, though, and what you expect from the industry. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 16%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
More than a handful of automotive companies had strong performances over the past year. Harley-Davidson (NYSE: HOG  ) surged 25% and still looks attractive to some, with a P/E ratio of 15, roughly half its five-year average, and a forward P/E of 12. Its revenue growth has sputtered in recent years, while earnings dipped and have been rebounding. The company's products are very discretionary items, and as our economy improves, demand for them should grow.

Electric-car maker Tesla (Nasdaq: TSLA  ) jumped 20% over the year, but that includes getting whacked recently upon lowering its expectations  for the year. One factor holding back electric-car sales is the relative paucity of charging stations. Tesla recently announced plans to open solar-powered stations, though bears are skeptical about that. Meanwhile, the company has been taking on debt and issuing more shares.

General Motors (NYSE: GM  ) advanced 14%, while Ford Motor (NYSE: F  ) gained 5%. Both companies have been turning themselves around, with Ford being more impressive so far. General Motors' last year was the most profitable one ever, and its new offerings have been well received, but competition remains tough, weakness in Europe is hurting it, and it's losing market share in the U.S.

Ford, meanwhile, has streamlined its offerings globally and has posted a dozen profitable quarters, while boosting its vehicles' quality. Its efforts to simplify production should lead to bigger profit margins and improved vehicles.

The big picture
Demand for automobiles isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

For more on Ford, be sure to check out this special premium report on Ford and its prospects compiled by the Fool's analysts. Click here to get your copy today, plus a year of free updates.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Ford Motor, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Tesla Motors and Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor, Tesla Motors, and General Motors. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 03, 2012, at 2:22 PM, emerlou wrote:

    WE NEED to STOP giving THE TAX PAYERS money to GM and the sorry unions...ANYBODY can show a profit if obummer gives them 26-55 billion dollars a year...Dont be fooled GM is not profitable on ther own.....GM is a HUGE money looser and all ways will be as long as the UNION has anything to do with it..JUST like the Post Office is and has been for years.

  • Report this Comment On October 03, 2012, at 2:23 PM, emerlou wrote:

    All public unions need to go and about 99% of other unions to to go...Unions make us all pay MUCH more for SORRY made goods and services.

  • Report this Comment On October 03, 2012, at 2:24 PM, emerlou wrote:

    Do America a huge favor and DEMAND your rep.. vote AGAINST ALL unions in yor state.

  • Report this Comment On October 03, 2012, at 4:07 PM, jwhoard wrote:

    You Obama-phobes really need to get a life. Anybody who tries to engage in any type of discussion about the economics of the auto industry gets these kinds of irrelevant comments. First all the facts are in error. Nobody gets--or has gotten--25-55 Billion dollars a year. I get it, of course, GM is the convenient target for all the far-right, tin-foil-hat types. But don't you even occasionally feel a need to actually debate the facts? I guess not. Do you even bother to read the articles you use as an excuse to rant and rave? I guess not. Man, that is just a sad, old, paranoid compulsion. Get a life.

  • Report this Comment On October 04, 2012, at 9:54 AM, mountain8 wrote:

    Ok, jwhoard.

    You could have talked about the article instead of judging these comments. Your comments are about as irrelevant. And insults really don't get anyone to listen to your "debate". You must be a shop steward of something.

    I believe (this is an opinion everybody, not fact) Unions were once the best thing that happened for american workers over the last century. Now they have lost their way and become more political and they do more to keep their position with the workers than they do to help our country. It doesn't matter to them if they demand massive concessions that hurt the country. The rest of us don't matter, only their paying members.

    Unions can/have shut down massive cities to the detriment of the public (see New York Garbage strikes). They have the ability to shut down the country( see trucking strikes), which,of course, is so good for our country. Anyone with the determination to destroy a whole city (see garbage, New York, rats, cholera, plague etc) by leaving contaminated garbage to pile up in the streets is not "for the people". That's blackmail by any other standard and quite unhealthy for babies and other human types. They are ready to murder (see Jimmy Hoffa) to keep their political position. They sound just like congress.

    I think they are past their time. Workers aren't stupid. They now have the ability to negotiate on their own. They no longer need babysitters to argue their cause.

    Take the umpire strike. I agree it should never have happened. The owners suck. But their strike effected everyone who likes sports, thousands of advertisers, their employees, everybody down to hot dog sellers. For a couple million bucks. Not very cost effective for the country. It didn't hurt the owners, one can only have so much money and they are rich beyond my imagination. Didn't hurt the players, they're rich too. It only hurt the fans and all the support personal down to the last parking attendant trying to pay for his families groceries.

    For the couple of $millions that were being "demanded", they did umteen millions of dollars damage to their fellow americans. Very good for our country in our wonderfully enriching financial situation. Real patriotic. How many jobs did this $3M strike end? How many did they put on the unemployment rolls? Me personally, I haven't watched professional sports since the first football strike decades ago.

    So lets debate the facts. Tag, you're it.

  • Report this Comment On October 05, 2012, at 5:25 PM, jwhoard wrote:

    You know, part of what you say is correct. There was a time when the Union movement saved lives of the workers in some of the most dangerous industries, such as mining, manufacturing, food processing. Workers were dying due to poor safety, adverse working conditions, unreasonable hours, indifferent management and on and on. That was then, many of those little problems with people being ground up in the sausage making machines--are history. However don't kid yourself that the wealthy and indifferent business managers and owners (certainly a small subset of all managers and owners) care any more about their workers now than they did 100 years ago. Yes some public sector unions have taken advantage of management that cannot or will not bargain effectively. Whose problem is that? Does that mean we should elect better officials and hire better managers? Certainly. But this over-the -top union bashing goes way, way beyond that. Perhaps it is envy, based on ignorance, class hatred. I've lived in the South all my life and have heard this anti-union refrain all my 60+ years. Much of it is the way that the extreme anti-union interests use the poor, downtrodden, ignorant and prejudiced to carry their anti-union message.

    But you know what, Mr. Mountain8, this column has absolutely nothing to do with unions, it's about the auto industry. Not everything that has been wrong with the US auto industry--and much has been wrong over the years--can be blamed on the Unions. Most can be blamed on poor designs, bad marketing, bad quality and so on. Why can't you guys ever talk about anything other than the Big Bad Unions--it really sounds like some disordered mental compulsion--when it is the only thing you guys want to discuss. Look at the rants by emerlou (above). This is not a well puppy.

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