Investing: Can You Still Get Rich Off America's Dependence on Cars?

Find out what car CNBC's Jim Cramer used to sleep in when he was on the skids.

Politicians like Presidential hopefuls Mitt Romney and Sarah Palin are still arguing against the financial bailout responsible for GM, Chrysler and scores of auto parts companies staying alive. But for those who bought shares in U.S. auto and auto parts companies battered by the 2008 financial meltdown, the rewards have been huge and hardly debatable. And, according to some analysts who follow the industry closely, some of these stocks are still good bets for the future.

Starting with Ford, the Dearborn, MI automaker has been one of the best performing industrial stocks over the last 30 months. In the first trading day of 2009, Ford closed at $1.87. On May 20, the automaker closed at $15, though it has been as high as $18.97. Those who bought into Ford on Jan. 3, 2009 and are still holding the stock today, have reaped about eight times their investment.

The rewards for those who picked the mainstays of the auto parts companies have made out even better. Tenneco, a maker of emission control and ride suspension systems for vehicles, was trading at $3.22 on Jan. 3, 2009 closed at $40.10 on May 20. A buy of 1,000 shares for $3,220 is worth $40,100 today. Not bad, and certainly much better than investing the same money in a stock index fund or bank certificate of deposit over the same period.

Tenneco is what many would call an indispensable supplier to the auto industry because it is not only a leader in emissions technology, but its production wouldn't be easily made up for by other companies.

Hindsight, of course, is 20-20. And in January of 2009, GM and Chrysler were almost out of cash except for what the Federal government was lending them to stay open. Parts companies were going to be collateral damage, with many forced to go bankrupt or close, if even one of the automakers went belly-up.

What did investors in autos know in early 2009?

But what did investors who bet on autos in the industry's darkest days know? When the market tanks and all the news is bad, though, savvy investors tend to bet on companies with reputations for smart and solid management and staying power. That is what led some to place bets on Ford, which avoided a government bailout and was already being led out of years of losses by outsider CEO Alan Mulally. CNBC's Jim Cramer, host of Mad Money, says "understanding the quality of management is hugely important, especially when the markets take a big dive because smart managers of well run companies will bounce back the quickest." Cramer has been a big booster of Ford and CEO Alan Mulally.

Click the image below to watch AOL Autos interview with Jim Cramer:

Another parts company to reward its investors is TRW, which makes safety systems among other components. The company traded at $3.91 29 months ago, and closed at $54.59 on May 20. American Axle, whose business has historically been dominated by GM business, traded at $2.75 and closed at $10.78 May 20. AS GM has come back, so has American Axle.

But what's past is prologue. Investors don't bet on the past, but rather the future. So, how do auto stocks look going forward?

The U.S. still runs on cars and trucks, not trains and buses.

There are several fundamentals about the U.S. auto industry, including the parts companies, to keep in mind. Here are four:

1. The U.S. runs on its cars. Because the U.S. has more sprawl than Europe and Japan, we do not have much of a passenger train business outside of the Boston to Washington DC corridor. Look around at how people are getting place to place, and it's cars, SUVs and pickup trucks. They are an essential part of the economy, and will remain so for the rest of the century.

2. GM and Ford control about on-third of the U.S. auto market. Most analysts feel that the companies have bottomed out on market share. Now, with products that keep gaining in quality and design rankings, and operations that have much lower costs than before 2009, profits and market share gains are widely expected to continue.U.S. companies are well positioned to take advantage of the growth in China, India, Russia and Brazil, which are growing much faster than the U.S. GM is one of the leading automakers in China.

3. The biggest drag on GM, Ford and Chrysler were their expenses related to pension and healthcare for retirees. Chrysler and GM have largely been able to hit the re-set button on those liabilities thanks to the bankruptcy process it went through in 2009. Ford has been making enough cash and profit to manage their liabilities without bankruptcy, and have gained significant cost-cuts through negotiating with the United Auto Workers.

4. This is a longer term fundamental, but as the economy gains ground and housing starts eventually gain momentum, Detroit companies will be the biggest beneficiaries because they still dominate the highly profitable business of pickup trucks. Sales of pickups have been hurt by the burst of the housing bubble and depressed home values and housing starts.

Despite Ford shares dropping about 13% so far this year, most Wall Street analysts believe the company is still the best buy over the next six-to-twelve months, compared with GM, which issued public shares last November. Ford should earn pretax profit margins of up to 9.6% of sales this year and 9% next year, almost double the 4.8% margins it earned in 2010.

But the analysts looking more favorably on GM are actually growing in number despite the preference for Ford. Of 18 analysts reporting recommendations in the last three months, 65% now have GM listed as a "buy," with just 25% rating Ford the same way, according to Bloomberg News. Just 1% of those same analysts recommend selling GM shares, while 19% have a "sell" on Ford shares.

Barclays Capital; has a price target of $20 for Ford and $44 for GM.

Fed Gearing uo to sell its GM shares

While taxpayers still hold 33% of GM shares, about 500 million shares in total, which some believe is a drag on the stock price, the company is getting good press on its newest vehicles, profits are healthy and the GM CEO is buying up shares with his own money on the open market. GM CEO Dan Akerson bought 30,000 shares earlier this month for the market price of $31.33 a share, more than doubling his holdings to 50,000 shares. It's usually a good sign when insiders are buying the stock.

The U.S. Treasury has indicated it will start to sell the rest of its shares starting in August.

Ford and GM shares look cheap, compared with shares of Toyota and Honda. Based on the May 20 close of $15 per share, Ford is trading at 8 1/2 times earnings. GM at $31.18 trades at 7 1/2 times earnings. Even with the dips on Toyota and Honda shares owing to decreased earnings and future financial fallout from lost production of cars and trucks in Japan, Toyota shares have still been trading at 25 times earnings.

That Toyota shares haven't cratered further is a testament to how confident investors are that Toyota will bounce back fast. Individual U.S. investors who are believers in Toyota's comeback from the massive recalls and Earthquake troubles can buy the American Depository Receipts of Toyota, symbol TM, as well as those of Honda, symbol HMC. Toyota has traded in a range of $67.56 to $93.90 over the past 52 weeks, and closed at $82.21 on May 26. Honda has traded between $28.33 and $44.56 in the last 52 weeks and closed at $38.16 on May 26.

Hedge funds certainly seem bullish on GM and Ford. Twenty hedge funds owning GM stock bought 15 million more shares between January and April, according to TheStreet.com. Ford's 20 largest hedge shareholders added 6.8 million shares in the same period.

There may be a new auto stock to look at by early next year assuming Chrysler LLC follows through with its plan to hold an initial public offering. So, there is plenty of time to read up on the company and test drive its new models before making an investment.

Bottom Line: Before investing in any stock, do plenty of research. But there is no denying that the auto industry is a vital pillar of the U.S. economy. When investors have uncertainty about the markets, they tend to flock to companies and industries that the market, and consumers, can't live without, and then choose the best managed companies with the best balance sheets and prospects.

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