Despite Strong Earnings, Goldman Remains Cautious On Auto Suppliers

So far this earnings season, the market has not been impressed by relatively strong earnings from the auto industry, and neither has Goldman Sachs. There have been 16 consensus beats in the auto space so far compared to only four misses, but auto stocks have only gained an average of 0.3 percent on reporting day.

Goldman analyst Patrick Archambault sees several reasons for the tepid market reaction.

“We believe this was due to more conservative management tones that outlined a number of risk factors surrounding global production amid a plateauing US backdrop, a level of uncertainty in China following the stimulus tax break, and continued weakness in South America,” Archambault explained.

Related Link: 10 Major Risks Tesla Sees In Its Future

He mentions a few names specifically that Goldman is avoiding for now: Neutral-rated Meritor Inc (NYSE: MTOR), Magna International Inc. (USA) (NYSE: MGA) and Metaldyne Performance Group Inc (NYSE: MPG), as well as Sell-rated Titan International Inc (NYSE: TWI).

Instead, Goldman believes that investors should be focusing on companies with secular growth opportunities. Archambault names Delphi Automotive PLC (NYSE: DLPH), BorgWarner Inc. (NYSE: BWA) and Harman International Industries Inc./DE/ (NYSE: HAR) as his top three stock picks.

Despite record auto sales, the First Trust Exchange-Traded Fund II (NASDAQ: CARZ) is down 10.8 percent in 2016.

Disclosure: The author holds no position in the stocks mentioned.