Auto stocks are rising, and here's what two traders are recommending

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Shares of two U.S. car companies are on the rise.

Year to date, Ford and General Motors are outpacing Tesla, a top performer in 2020. Tesla has risen 17% this year. Ford is up 34% in 2021 and was upgraded Tuesday to buy by Argus Research. GM, which is up 29% this year, beat Wall Street’s fourth-quarter earnings expectations on Wednesday. Both automakers have warned that a chip shortage could cut 2021 earnings.

It’s encouraging to see Ford and GM “finally innovating” as the legacy automakers forge ahead on their electric vehicle projects, said Mark Tepper, president and CEO of Strategic Wealth Partners.

“These are two American icons that you really want to root for,” Tepper told CNBC’s “Trading Nation” on Tuesday. “The new Ford Bronco is a hot car. It’s really cool. And then you’ve got one of the biggest gas guzzlers in the history of Earth reemerging as an EV. Great turnaround for both of these companies.”

He said the best way to play the auto trade would be to focus on the technology going into the new vehicles.

“What do all new cars have in common? It doesn’t matter if they’re EV or gas, there is more technology going into every single car every single year, so that’s the trend I want to play, and I can play that through Aptiv,” Tepper said. 

Aptiv, which is up 13% in 2021, seems to be a key ingredient for auto innovation, with Tepper calling the company “the bridge between tech and auto.” The company specializes in using software to enhance vehicles’ safety and performance.

Nancy Tengler, chief investment officer at Laffer Tengler Investments, said that if there is an auto stock to buy, it’s Ford.

“If you are determined to be in the auto space, Ford is probably the way you want to play this,” she said in the same interview, referencing a chart. “On a relative price-to-sales ratio basis, it’s at a near-historic low in terms of what you’re paying for a future unit of sales.”

Tengler also prioritized tech for the vehicles, looking at the chip stocks.

“We’ve actually played this somewhat through our chip names that have a fairly significant portion of their revenue allocated to autos,” she said, highlighting Qualcomm and Texas Instruments.

“We’ve been overweight,” Tengler said. “We’ve been trimmers recently because those stocks have had a very good run. … [Cars are] so automated and there’s so much technology. I do think that that trade continues for some time.”

Disclosure: Laffer Tengler Investments owns shares of Qualcomm and Texas Instruments.

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