Best Auto Stocks to Buy in 2022

If you are a stock market investor sector rotation is a phenomenon that definitely you should understand. If you look at the April 2020, post-COVID There are two sectors which have given exceptional returns. One is healthcare other one is IT 2020 and 2021 it has given exceptional returns.

And in 2022 it has given because to fall to their investors and metals, it only 2021 It was the owner of the high yielding sector and today this is the industry that which has a fall and the most in 2022 and the automotive sectors are no exceptions for the stock market and this particular sector has given a lot of volatility in the last three years.

So, in this article, I'm going to tell you that is it a good time for you to invest in the automotive sector. I'm going to discuss with you that why there was so much uncertainty when it comes to automotive shares and what has changed now. So, why the automotive sector is facing so much of uncertainty?

Why the auto sector is uncertainty?

There are multiple reasons the number one reason is supply chain constraints, the semiconductor is one of the important auto ancillaries, and in China and in South Asian countries, there was a major disruption in September. So, many companies are actually halted their production for weeks and for months also and that was one reason.

And high metal prices, metals like aluminum copper iron, the prices went up commodity prices went up. So, when the raw material price goes up, of course, the price goes up and the demand comes down. The second biggest challenge and third biggest challenges are high-interest rates high inflation, and possible recession. 

So, when the inflation goes up when the recession steps in, people won't spend for entertainment and luxury spending people spent only for essentials. So, those were the factors that was keeping the auto sector kind of volatile kind of uncertain.

what has changed now?

number one, the metal prices have corrected 10 to 20% that is a very very big correction and that was very good news for the auto sector because when the raw material prices come down, the margin goes up the bottom line goes up 

number two reason is the supply chain constraints ironed up the semiconductors and others constraints are ironed out.

number three reason is normal monsoon, one of the very big reasons the passenger cars not only sold in urban cities, but also entire to unpack when that is a normal monsoon that means the rural push would be good not only for passenger cars, but also for farm equipment, tractors, and commercial vehicles government is also very active in improving their infrastructure. 

So, the commercial vehicle purchase the commercial vehicle push would be also there. So, these are fundamentally the good reason and an extra three to five years the micro and macro fundamentals are also good people are having a good amount of money.

they are that the tax collection indirect tax collection direct tax collection is also at the highest so that means that two people are having money people are spending the structuring well.

So is this a good time to enter into the stock automotive sector? Yes, definitely. There are many favorable indicators out there and these are my top three picks when it comes to the auto sector. 

Disclaimer

So before we go into recommendations, if you want to buy these stocks, please do your own research because it is completely my personal opinion and research and consult with your financial advisor or an expert.

Because your risk appetite in your portfolio is different and your risk-return expectation might be different. So it involves a lot of volatility when it comes to stock investing. So please consult your financial advisor.

#1. Number

The number one stock in my basket is Tata Motors. Say I divided this recommendation into two parts one is qualitative and the other one is quantitative if you look at the quantitative everything is in a discouraging disadvantage when it comes to Tata Motors. It is a very high-debt company. 

They have a debt of 1.46 lakh crore is a very very huge borrowing. Definitely is not a good sign number two is that till now, it is a loss-making company. It is not a profitable company. They haven't been a net loss of now 1400 crore is a huge loss. So, quantitatively it is not a good stock at all, but looking at the qualitative factors,

there is a very good retail demand among the Indian customers from the Tata Motors, the company has quickly stepped into a third largest carmaker in India next to Maruti and Honda This is the third largest car maker and in fact, it has even surpassed Hyundai When it comes to manufacturing.

Because Hyundai was going into kind of kind of maintenance issues they were halted for STEM probably they are altered. So, that time they have surpassed basically that they have improved that distribution, they have a very strong portfolio. If you accepted a TATA motor distribution two or three years it could have seen only two or three cars placed. 

But today they have a very strong portfolio including electric Patric in electric vehicle Tata Motors is one of the largest across India and look at let it be small car let it be SUV let it be said that they are comfortably placed everywhere. So, they have a very good portfolio and the cost the margins are increasing consistently in the last three years

And eyes on the cake and JLR Jaguar and Land Rover portfolio which is also doing good for Tata Motors. So, qualitatively stocks looks good but if you look at quantitatively it is definitely not a good stock. It's like gutsy call, I would say for Tata Motors, 

#2. Number

The second is the evergreen Maruti Suzuki. The good thing about Maruti is they have a very strong portfolio domestic demand is extremely good, they have a beautiful distribution across geography across India, they are bringing many expansion new model new launches very very strong portfolio when it comes to the car. 

So, let it be a small car, let it be SUVs, they present everywhere they have even Maruti they are present in luxury segment like NEXA also. So, these are the good things about Maruti but the disadvantage is they are consistently losing share when it comes to competition.

At some point in time, there are 70 percent of competitive shareholding was there among the competition, and now it has been reduced to the 45% range. So tears consistently coming down but still, they are an extremely good car company to invest in for the next three to five years if you're going to make it stay invested. 

#3. Number

Definitely and third company is Mahindra and Mahindra. This particular company stepped up their r&d. Definitely in the last five years. Look at these two cars, Thar and SUV 700 They have a very strong demand among the customers. Even the waiting period goes up to six months for Thar and SUVs out and right now not only passenger cars or SUVs. 

Look at the farm equipments and tractor demand normal monsoon demand will definitely pick up it's basically an SUV company so they have very good demand entire to one tire three cities, I would say king of SUVs is purely is my enrollment rate when it comes to SUV.

The first preference would be Mahindra and Mahindra, their return on equity has been improved tremendously. And they have a better capital allocation when it comes to the company.

So these are my three picks of automobile stocks when it comes to automobile sector but don't jump into purchasing these stocks now because purchasing a stock is like purchasing in the business of this particular company. So if you have the patience to hold up the stocks long term for the next five years.

And if you are a gutsy customer because when it comes to Tata Motors qualitatively it's good but quantitatively is bad when it comes to Maruthi very good company, a consistent performer but it's they're losing their market share. So it's like a balance between guts as well as the financials. 

So all the factors are actually favorable to enter into an automotive stock due to normal monsoon structurally good prices have come down and the demand is consistently going up from the customers and so if you want to purchase automotive stock this could be a good time if you are an investor for next five to seven years consistently.