Australia's automotive sector is becoming increasingly popular for investors looking for exposure to stocks linked to consumer discretionary spending. After all, these are products that consumers typically purchase when they have extra income, such as when interest rates fall.
For investors who aren't sure where to look, Macquarie Group Ltd (ASX: MQG) has just named its top S&P/ASX All Ordinaries Index (ASX: XAO) picks for the sector.
Here's what the broker has to say.
Top picks for auto dealers
In a note to investors, Macquarie said it thinks underlying profit before tax (UPBT) margins have bottomed.
The broker also said that the full benefit of further rate cuts hasn't been fully factored into consensus earnings.
Every 25bp rate cut provides a ~$6.3m/$2.1m annualised benefit for APE/ASG's interest costs.
As a result, Macquarie has an outperform rating on ASX All Ords stock Eagers Automotive Ltd (ASX: APE) and a target price of $20.35. This represents a potential 8.94% upside from $18.68 as of lunchtime today.
The broker also has an outperform rating on Autosports Group Ltd (ASX: ASG) and a target price of $2.00. The stock is changing hands at $2.29 as of midday today.
We have an OP on APE and ASG. APE is our preference given: 1) scale; 2) brand diversity; 3) BYD opportunity; 4) LT margin upside; and 5) potential offshore expansion.
A larger than typical 2H skew is expected for APE of ~54%, which should be supported by: 1) rate cuts ($6.3m 2H benefit); 2) Toyota incentive payments (~$15-18m); and 3) BYD outperforming.
Top picks for auto accessories and aftermarket
Volumes for 4×4 Accessories were mixed in June. Hilux, Prado, Triton, and D-Max had solid volumes, but Navara and Landcruiser were down 31% and 9%, respectively.
Our 4×4/ARB index was up +12.3% in Jun'25 and down -12.3% FY25YTD. Volumes in 2HFY25 (Jan-Jun 25) grew +7.7% sequentially. Our APG/AOV index declined -2.6% in Jun'25 and is down -4.6% FYTD.
Volumes in APG's top 20 and also key 4×4 models, where it over-indexes in revenue per vehicle, have improved over the last few months, but remain under pressure – Light Commercial vehicles as a % of total sales have reduced from 24.1% in CY21 to ~22% in CY25.
The broker has an outperform rating and a $10.90 target price on Amotiv Ltd (ASX: AOV). This represents a potential 28% upside from the current trading price of 8.51.
Macquarie also has an outperform rating and a $45.40 target price on ARB Corp Ltd (ASX: ARB). This is a potential 33.86% increase from the current trading price of $33.915.
AOV's val is attractive (~10x FY25e PE) and we remain positive on ARB's offshore growth opportunities (~24x FY25e PE).
The broker also has an outperform rating and target price of $5.85 on Bapcor Ltd (ASX: BAP), which is 11.8% higher than the trading price at lunchtime today.
