Investors have been claiming auto stocks are cheap for some time now… and they got cheaper. In addition to being classic late cycle stocks (i.e. they roll over at the end of the economic cycle), Hedgeye Demography Sector Head Neil Howe discusses why the industry faces massive demographic headwinds with Hedgeye CEO Keith McCullough.
Here are the key four risks the industry faces, according to Howe:
- Car buyers aged 53 or older now make up 50% of sales
- Meanwhile, “Millennials just aren’t buying cars at all”
- Eight years of interest rates at the zero bound, has “sucked future consumption into the present”
- Auto-industry rebates have made sales unprofitable
For these reasons, Howe says, “When people say auto stocks are a great buy because their earnings and dividends are huge, I’m saying, ‘No, they could go under in the next recession.’”
