February may be the month of love as many people get ready to celebrate Valentine’s Day tomorrow, but instead of candle-lit dinners and flowers, I’d like to discuss how to invest in many people’s other passion… for cars.
The car industry is a large part of the our economy. The Society of Motor Manufacturers and Traders (SMMT), the carmakers’ trade body, provides valuable figures and updates on the state of the industry. It’s a good source to check out the latest developments, such as the number of new car registrations.
So what are some ways to get exposure to the industry?
Disruptors
To start, if you enjoy driving and cars, I’d encourage you to pay attention to disruptive trends and emerging developments in the car industry that should affect stock portfolios in the near future.
Disruptive technologies such as electric vehicles (EVs) and autonomous driving present both an opportunity and a threat to many automakers and the industry.
Several companies that may be worth your attention are driver monitoring systems business Seeing Machines, telematics companies Trakm8 and Quartix, and cyber security firm NCC.
But even without investing in industry disruptors, you could still build a diversified portfolio with car links. Companies in the value chain would include vehicle manufacturers and suppliers, insurers, retailers, and tyre manufacturers.
FTSE 100 shares
Britain’s leading stock index, the FTSE 100, offers several possibilities for investors to consider. Many of our readers would be familiar with Auto Trader, which operates the UK’s largest digital automotive marketplace. The group specialises in both second-hand and new automotive sales, including cars sold by private sellers and trade dealers.
The law says that you must normally have at least third-party motor insurance if you drive or own a vehicle. And that is why insurers, such as Admiral Group, Aviva, Hiscox, and Legal & General, could be the next group of stocks to consider.
And Melrose Industries, which specialises in acquiring and improving underperforming businesses, owns GKN Automotive. It’s a leading global engineering and manufacturing company that delivers mass production solutions for mobility.
FTSE 250 and AIM stocks
Outside of the FTSE 100, investors would be able to find several companies that are FTSE 250 or AIM-listed, the latter being the London Stock Exchange’s market for smaller companies.
One of the most obvious ways to get into the car industry is through investing in car dealerships and retailers, such as Cambria Automobiles, Lookers, Marshall Motor Holdings, Pendragon and Vertu Motors.
If you are looking for global automotive distribution, retail, and services companies with UK headquarters, then Inchcape may well fit the bill. As the company also generates over two-thirds of its underlying operating profit from Asia-Pacific and emerging markets, the shares could also offer global diversification.
Retailer Halfords, a household name, is a stock that has been affected by political uncertainties as well as declining car sales and may be worth analysing further, especially if you are a contrarian investor.
And talking of contrarians, if you like fast cars and have very high risk-tolerance as an investor, you may want to do due diligence on sports car maker Aston Martin Lagonda, which went public in 2018.
In short, diversifying into the car industry may help drive your portfolio higher in the coming years and help feed your interest in cars in the process.