Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Fiat Chrysler Automobiles Fell 21% in January

By John Rosevear – Feb 2, 2016 at 8:05AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the Italian-American automaker got caught in a broad sell-off of auto stocks in January. But is FCA now a bargain, or is it cheap for good reason?

What: Shares of Fiat Chrysler Automobiles (FCAU) fell 21% in January. The Italian-American automaker's stock opened at $8.91 on Jan. 4 and closed at $7.04 in the last trading session of the month, on Jan. 29.

So what: FCA was caught in a broad-based sell-off of auto stocks that also hammered the shares of most of its global peers last month. Investors are concerned about the slowing pace of auto-sales growth in the U.S., and about increasingly precarious-looking economic conditions in China. Or put simply, autos are a cyclical business, and it's starting to look like the top of the cycle.

There are reasons to be more concerned about FCA than about many of its rivals. Unlike its traditional Detroit rivals Ford and General Motors, FCA has more debt than cash on hand: Its "net industrial debt" stood at 5 billion euros as of the end of 2015. It's also much more dependent for profits on truck and SUV sales than its rivals.  

And it appears to lag nearly all of its major rivals in the development of advanced technologies like battery-electric vehicles and driverless-car systems that are expected to be widely adopted over the next decade or so. 

Now what: Last week, CEO Sergio Marchionne announced that FCA would discontinue U.S. production of two sedan models in order to boost its production of SUVs and trucks. That will help profits in the short term -- and Marchionne is clearly gambling that the profit boost will help fund his efforts to make the company more diversified and more competitive in time.

It's definitely a gamble: FCA is racing to boost its profitability ahead of the next major economic downturn (which is inevitable, and a fact of life in the auto business.) But it might be something of a long shot. For investors digging through beaten-up auto shares looking for bargains, I think the better bets will be found elsewhere.  

John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Fiat Chrysler Automobiles N.V. Stock Quote
Fiat Chrysler Automobiles N.V.
FCAU

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.