The Zacks Analyst Blog Highlights: General Motors, Cooper Tire & Rubber, Delphi Automotive, Meritor and McDonald's

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Sep 11, 2014, 09:30 ET

CHICAGO, Sept. 11, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the General Motors (NYSE:GM-Free Report), Cooper Tire & Rubber Co. (NYSE:CTB-Free Report), Delphi Automotive PLC (NYSE:DLPH-Free Report), Meritor, Inc. (NYSE:MTOR-Free Report) and McDonald's Corporation (NYSE:MCD-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Wednesday's Analyst Blog:

3 Auto Stocks to Pick Up Speed

According to the recent Federal Reserve report, consumer credit has jumped 9.7% banking on higher non-revolving credit in July. A significant rise in auto loans majorly contributed to this non-revolving credit growth. Moreover, higher educational loans also played an important role.

Total consumer credit soared $26 billion to reach $3.24 trillion in July. This is way above the consensus expectation of an increase of $17.3 billion. This also compared favorably with the increase of $18.8 billion in June. Impressive growth in the auto loans segment helped the non-revolving credit, the biggest contributor behind increased credit, to rise 10.6% or $20.6 billion to $2.36 trillion in July. This was the highest gain in almost a year's time. The jump in July's non-revolving credit was followed by the 8.8% or $16.99 billion increase in June.

Auto Demand: The Major Catalyst

The increase in auto demand is evident from the impressive auto sales report in August. According to Ward's Automotive Group, auto sales on a seasonally adjusted annualized rate (SAAR) basis surged to 17.5 million units in August from 16.5 million units in July. This was the highest level since early 2006. Among the automakers, Chrysler topped in terms of year-on-year sales increase, while General Motors (NYSE:GM-Free Report) was leading in terms of absolute figure. (Read: U.S. Auto Sales Up 6% Y/Y in August, General Motors Leads)

What's Driving Auto Sales?

Most of the recently released economic data came out positive, signaling economy's rebound. The strong growth in the economy helped the consumer confidence in August to grow to the highest level since Oct 2007. According to recent Conference Board data, the Consumer Confidence Index increased to 92.4 in August from 90.3 in July.

Moreover, the recent decline in oil prices is also increasing demand in the auto sector. Starting from August, crude has been trading significantly below the major psychological threshold of $100 per barrel. The forecast of excess supply will keep prices under pressure this year which will help the auto sector to register impressive sales results. (Read: Crude Prices See Softness: 3 Oil E&P Stocks to Dump Now)

Meanwhile, auto sector also needs to thank the banks for sales growth. With the improvement in the general economic situation banks are now offering more car loans with lower interest rates and longer repayment periods. This has created a favorable credit environment for the consumers, leading to a rise in auto demand.

3 Auto Stocks to Buy Now

The trends indicate that Auto credit will surge further in near future. Amid this promising environment, here are three auto stocks that can enrich your portfolio:

Cooper Tire & Rubber Co. (NYSE:CTB-Free Report) manufactures and markets tires and related products. This Zacks Rank #2 (Buy) company operates through North American Tire Operations and International Tire Operations.

The company has current year EPS growth estimate of 54.8% compared to industry growth rate of 22.3%. The stock trades at an attractive P/E ratio of 11.28. The Zacks Consensus Estimate for the current year has been revised 2% upward over the last two months.

Delphi Automotive PLC (NYSE:DLPH-Free Report) is a manufacturer of vehicle parts and provider of electrical and electronic, powertrain, safety and thermal technology solutions to its automobile clients, all over the globe. The Zacks Rank #2 (Buy) company provides services using four segments which are Electrical / Electronic Architecture; Powertrain Systems; Electronics and Safety and Thermal Systems.

The company has current year EPS growth estimate of 15.6% compared to 10.9% for the industry. The stock trades at an impressive P/E ratio of 14.01. The Zacks Consensus Estimate for the current year has witnessed a 2.2% upward revision over the last two months.

Meritor, Inc. (NYSE:MTOR-Free Report) supplies drivetrain, mobility, braking and aftermarket solutions for commercial vehicle and industrial markets. This Zacks Rank #2 (Buy) company serves commercial truck, trailer, off-highway, defense, and specialty and aftermarket customers around the globe.

The company has current year EPS growth estimate of 96.5% compared to industry growth rate of 10.9%. The stock trades at a P/E ratio of 17.79. The Zacks Consensus Estimate for the current year has seen a 31.7% upward revision over the last two months.

Bottom Line

The favorable credit scenario and encouraging economic data will boost demand for auto as well as auto parts. These three top-ranked auto parts manufacturers should benefit from this trend.

McDonald's Comps Fall 3.7%, Q3 Guided Down

McDonald's Corporation's (NYSE:MCD-Free Report) comps declined 3.7% for the month of August, worse than a decline of 2.5% in July. Comps had increased 1.9% in the year-ago quarter. In fact, these were reportedly the worst comps posted by the company since 2003.

None of the regions could post positive comps. However, the majority of the decline came from the Asia/Pacific, Middle East and Africa (APMEA) region due to supplier issues in China. In fact, given the intensity of the China issue, the company expects its third quarter earnings per share to decline year over year by 15 to 20 cents. Share price of the company hit a new 52-week low in response.

Regional Update

Asia/Pacific, Middle East and Africa (APMEA)

Comps in the APMEA region declined 14.5%, worse than July comps decline of 7.3% and the year-ago comps decline of 0.5%. The results reflect the impact of recent food safety issues in China, which has adversely affected comps in China, Japan and certain other markets.

It was found that Shanghai Husi Food Co – a supplier of McDonald's -- was reusing meat that had fallen on the factory floor as well as mixing fresh and expired meat. This led to food safety concerns among McDonald's customers, thereby negatively impacting comps. However, the company indicated that it is undertaking recovery strategies to regain customer confidence.

Europe

Comps in Europe declined 0.7% that compared unfavorably with the year-ago increase of 3.3% and positive July comps of 0.5%. The dismal comps reflect weak performance in Russia where the company is facing pressure from consumer safety regulators who have reportedly kept more than 100 of McDonald's restaurants under inspection. Also, they have reportedly shuttered a dozen of its units citing multiple violations of sanitary rules. (Read More: 100 McDonald's Units under Russia's Scrutiny; 12 Shuttered).

However, these negatives were partially offset by positive performance in the UK, owing to the company's premium beef and chicken offerings, along with the ongoing expansion of breakfast and blended ice beverages.

McDonalds expects weak consumer sentiment to negatively impact sales and profitability in this market as well in the third quarter.

U.S.

Comps in the U.S. declined 2.8% against growth of 0.2% last year. However, the numbers were favorable compared with a decline of 3.2% in the month of July. Sluggish comps reflect difficult economic conditions and stiff competition. The region has not been able to post positive comps since Oct 2013 mainly due to heightened competition and a few unwise decisions that have slowed down service.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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