Auto stocks get mixed reviews


The auto industry, as evidenced by company press releases explaining financial losses and job layoffs, is one of many beleaguered industries to blame the Persian Gulf war and weak U.S. economy for its recent woes. Which seems a fair enough assessment. They are tough circumstances to cope with.

Yet, while such factors have undeniably affected the psyche of the American consumer, a haunting question remains: What if matters don't get all that much better for the carmakers with the war having ended and if the economy begins to improve?

This worry has divided Wall Street auto industry analysts into several camps, some enthusiastic about the future, others lukewarm, still others tossing around all the doom and gloom they can conjure up.

Virtually all analysts predict continued industry-wide red ink in the first quarter. They agree that the strong stock performance of the car companies this year indicates surprising optimism about this cyclical group's future. And, they hold distinct opinions on the investment outlook.

"The cyclical recovery of the auto industry, already under way, was just sidetracked awhile by the Persian Gulf war, and it will be back on track later this year," said Douglas Laughlin, analyst with Bear Stearns & Co.

He recommends the immediate purchase of shares of General Motors Corp. and Chrysler Corp. GM is favored due to its signs of turnaround, a strong position in Europe and positive results of cost-cutting. Chrysler, likely to be the purest beneficiary of a domestic car market recovery, is the most profitable of U.S. carmakers.

Now let's take that optimism down a notch. "I agree that we're at the bottom of the down cycle and that the auto stocks will be trading higher, but the lack of consumer confidence will continue and there won't be any pickup in these equities until late this year," said Steve Girsky, analyst with PaineWebber Inc.

He recommends that owners of car stocks hold on, but isn't suggesting new purchases.

Now for a bearish view. "Even if the Federal Reserve is able to take steps to stabilize the U.S. economy, investors will be surprised to find that it won't stabilize Ford and GM earnings," said Thomas Galvin, analyst with C.J. Lawrence, Morgan Grenfell.

He calls for investors to sell shares of Ford, GM and Chrysler as soon as possible.

The obvious message is that a lot of gut-level feeling is currently required of investors in these stocks. Be flexible.

Incidentally, Laughlin isn't recommending stock of Honda Motor Co., sold on the New York Stock Exchange as an American depositary receipt (ADR), because he doesn't consider it as good a value as U.S. companies. That's due to high Japanese stock market valuations, the fact the company is now subject to the U.S. economy more because it manufactures so many cars here, and the reality that it isn't as big in Europe as the U.S. carmakers.

Suppliers might be in better shape than the car companies.

Among auto-related stocks, Laughlin recommends Dana Corp., a parts manufacturer which completed a massive five-year modernization program and now ships components such as axles to Japan as well as throughout the United States.

Girsky likes Superior Industries International, which will manufacture 5 million aluminum wheels for carmakers this year, and Allen Group, which makes cellular telephone cell site equipment and emissions testing equipment.

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