May 11, 2016

Doubling down on Auto manufacturer stocks

I can't emphasize more vigorously than I have in the past few months how big a mistake I believe buying automobile stocks might be in the mature automotive cycle that I think we're currently in.

In fact, I recently doubled my auto shorts following better-than-expected results -- i.e. those in the rearview mirror -- from Ford and General Motors.

Of course, it's almost tautological these days to go long on F and GM based on their apparent low valuations relative to trailing 12-month data -- but you could apply that same logic to most cyclical stocks.

As an example at the other extreme, look at the sharp advance that we've seen in cylical stocks over the past three months from almost infinite price-to-earnings ratios. The expression is: "Buy at the Sound of Canons and Sell at the Sound of Trumpets."

Watch the continued fall in used-car prices and the increase in new-car incentives (which rose to 10.3% of average transaction price during April) as signs that the auto cycle has peaked.

To me, "Peak Autos" is as clear as the road ahead.

Position: Short F, GM

via thestreet