Auto industry still revving up

Automotive sector stocks have come roaring back to life. Here are one analyst’s top picks.

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From the September/October 2013 issue of the magazine.

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Automotive sector stocks have come roaring back to life after the industry was almost left for dead in 2008. Although valuations have risen, there are still plenty of places to buy in provided you look for solid earnings expansion. Efraim Levy, an auto and auto parts analyst at S&P Capital IQ, likes these companies best.

Top Pick: AutoNation (NYSE: AN)

15% forward EPS growth: As the largest U.S. dealership chain, this operation will benefit from rising sales to first-time buyers. But people are also starting to replace old cars, providing more sales growth.

Johnson Controls (NYSE: JCI)

18% forward EPS growth: Every car needs a battery, and this Milwaukee-based business is a leader in innovations that make batteries last longer. It also has some non-auto divisions, which helps diversify earnings.

Magna International Inc. (TSX: MG)

13% forward EPS growth: This Ontario-based company, which makes a host of car parts, has lots of European exposure. This is partly why it’s trading at lower earnings, but it’s also where the growth will come from.

*Forward Earnings Per Share (EPS) growth represents the rate that income-per-share is predicted to increase over a one-year period.

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