Like driving? How I'd combine my passion for cars with investing in the FTSE 100!

Do you enjoy driving and cars? Then I’d encourage you to also pay attention to disruptive trends and emerging developments in the car industry that are likely to affect stock portfolios in the near future. Such companies in the value chain would include vehicle manufacturers and suppliers, insurers, retailers, and tire manufacturers.

The Society of Motor Manufacturers and Traders (SMMT), the carmakers’ trade body, provides valuable figures and updates on the state of the industry. According to SMMT, 2019 has not been an easy year so far, in part due to uncertainties over Brexit and global trade wars. As a result, the number of new car registrations have been on the decline.

The industry is a cyclical one and revenue depends on the level of car sales, which is correlated to consumer confidence as well as the general health of the economy.

So what are some ways to get exposure to this large industry? 

FTSE 100 shares

Britain’s leading stock index, the FTSE 100, offers several possibilities for investors to consider. Many of our readers would be familiar with Auto Trader, which operates the UK’s largest digital automotive marketplace.  The group specialises in both second-hand and new automotive sales, including cars sold by private sellers and trade dealers. 

The law says that you must normally have at least third-party motor insurance if you drive or own a vehicle. And that is why insurers, such as Admiral Group, Aviva, Hiscox, and Legal & General, could be the next group of stocks to consider. 

Finally, Melrose Industries, which specialises in acquiring and improving underperforming businesses, owns GKN Automotive. It is a leading global engineering and manufacturing company that delivers mass production solutions for mobility. 

FTSE 250 and AIM stocks

Outside the FTSE 100, investors would be able to find several companies that are listed in the FTSE 250 and AIM, the London Stock Exchange’s market for smaller companies.

One of the most obvious ways to get into the car industry is through investing in car dealerships and retailers, such as Cambria Automobiles, Lookers, Marshall Motor Holdings, Pendragon, and Vertu Motors.

If you are looking for a global automotive distribution, retail, and services company with UK headquarters, then Inchcape may well fit the bill. As the company also generates over two-thirds of its underlying operating profit from Asia-Pacific and emerging markets, the shares could also offer global diversification.

Retailer Halfords, a household name, is a stock that has been affected by political uncertainties as well as declining car sales and may be worth analysing further, especially if you are a contrarian investor.

Finally if you like fast cars, then you may want to do due diligence on sports car maker Aston Martin Lagonda, which went public in 2018.

Disruptive trends and emerging technologies

The car industry is a large part of the UK economy. And the industry is likely to change more in the next decade than it has done in the last 50 years – not only domestically, but around the world, too.

Disruptive technologies such as electric vehicles (EVs) and autonomous driving present both an opportunity and a threat to many automakers and the industry.

Several companies that may be worth your attention are driver monitoring systems business Seeing Machines, telematics companies Trakm8 and Quartix, and cyber security firm NCC.

In short, diversifying into the car industry could help drive your portfolio higher in the coming years.

More reading

tezcang has no position in any of the shares mentioned. The Motley Fool UK owns shares of Cambria Automobiles and NCC. The Motley Fool UK has recommended Admiral Group, Auto Trader, Pendragon, Quartix, and Vertu Motors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019


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