09/17/2020

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Americans Get Back on the Road and Investors Could Benefit



US Driving Levels are Up and Stocks Could Follow


According to the Federal Highway Administration, the number of miles driven by Americans plunged in March and April by 163 billion miles. However, as lockdowns lift and some states begin to open, many Americans are getting back on the road.

As driving levels begin to normalize, investors will keep an eye on stocks of companies that could benefit from more time spent in the car. These include auto parts makers, car dealers, and car manufacturers.

Automotive Stocks are a Mixed Bag


Ali Faghri, an analyst for Guggenheim, projects an increase in driving could be good news for auto parts salvagers and sellers like Advance Auto Parts (AAP), IAA (IAA), and O’Reilly Automotive (ORLY). Some drivers may be in the market for a new car, so investors may want to keep an eye on automakers such as General Motors (GM). In May, car sales were down only 29% from pre-pandemic levels, as opposed to 48% in April.

With that said, some auto stocks are a bit trickier. For example, when travel dried up over the past three months, stock prices in rental car companies followed. Hertz (HTZ) recently filed for bankruptcy and Avis Budget’s (CAR) stock is still down 22%.

Additionally, as more Americans hit the road, putting themselves and their cars at risk, investors are also keeping an eye on auto insurance stocks. Progressive (PGR), for example, is diversifying its offerings and selling auto and home insurance packages to bounce back from the economic shutdown.

Recovery Dependent on Reopening


While US driving data for May is not out yet, analysts and investors are hopeful heading into the summer. China’s traffic levels have surged back to pre-coronavirus numbers. Looking overseas could offer a road map for investors trying to plot out the US’s recovery.

On the other hand, coronavirus infection rates are increasing in states that have pushed forward with reopening. If Americans begin to become more wary of traveling and driving, it could set auto stocks back.


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