Along with the housing market improvement, increased consumer spending should flow into new and used car purchases. The car sales industry is cyclical, yet people’s desire to own a new car stays about the same. When financing costs come down due to lower interest rates, it spurs on buyers who have that pent-up demand.
I believe these three companies will be entering a better business climate even if interest rates go up somewhat.
Automotive retail and logistics services company Automotive Holdings Group Limited (ASX: AHE) has the largest number of auto dealerships in Australia. Earnings have been trending up steadily since 2009.
It is growing its refrigerated storage and transport logistics business. A new acquisition announced this month will make it the largest temperature controlled carrier in Australia. The automotive segment is still the main source of revenue, but the storage and transport business diversifies from the regular cycle of car sales.
It has a PE of 12.6 and its dividend yield is 5.7%.
ARB Corporation Limited (ASX: ARP) was added to the S&P ASX 200 Index (ASX: ^XJO) in March. That will open it up to more institutional trading by fund managers that may have trading restrictions on stocks outside of certain indices.
Its namesake brand for off-road vehicle parts and accessories is well known and its stock price rose strongly from 2009 to early 2013. Its sales have been affected by the mining pullback, but as regular consumer spending picks up, it could see more business.
The company’s export business that manufactures out of Thailand saw good growth. New warehouses in the US and Czech Republic will start trading this month, so that may give the company more earnings for its full year 2014 result.
AP Eagers Limited (ASX: APE) operates vehicle dealerships for cars and trucks, as well as a substantial motor auction business, Brisbane Motor Auctions. Since 2008, net profit after tax has been generally rising each year. Dividends also increased annually during that time. Its dividend yield is 4.4%.
In the short-term it plans to grow its business clusters and has flagged potential acquisitions in 2014. It made a $15 million acquisition in March of several dealership operations that have an annual turnover of about $150 million. The company expects that the purchase will add to earnings within 2H FY2014.
Following the business cycles of various industries creates investing opportunities. Starting your investing at the lowest and weakest part of the cycle gives you the best chance for catching most of the ride up to the peak.