Right now, the U.S. auto industry is experiencing one of the most dramatic shifts it's ever seen. Across the country, people are trading in their sedans for SUVs at staggering levels.
From 2013 to 2018, SUV sales are up 87%, while sedan sales are down 8% globally.
In 2014, SUVs represented 50% of total U.S. auto sales. By 2016, that number had jumped to 63%. They hit their highest level ever in May 2018 at 67%.
This trend shows no signs of stopping, which is excellent news for the best auto stock to buy today...
Both boomers and millennials prefer the extra space and higher ride SUVs offer, according to a report from the Los Angeles Times. Improvements in fuel economy combined with higher wages and lower gas prices have made SUVs even more attractive.
The company we have today has deemphasized its sedan business and now produces twice as many SUVs as sedans since early 2016.
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By 2022, LMC Automotive estimates that 97% of this company's sales will be SUVs or trucks. Over 70% of this company's profits were generated in North America last year, where demand for SUVs is strongest.
And America isn't the only place where SUVs are growing in popularity.
Drivers in China and Australia are also ditching their small sedans for bigger rides.
For the first time, SUVs accounted for more than one-third of cars sold globally in 2017, tripling their share from just a decade ago.
This switch from SUVs to sedans is paying off handsomely for our favorite stock to buy now...
Margins are higher on SUVs and trucks, which helped this company increase total profit in 2017 by 93% to $4.35 billion. In total, sales were up 8% year over year in June 2018, rising to 202,264 vehicles.
Best of all, this shift in the industry is just one of four reasons we think this is the top auto stock to own...
The Best Auto Stock to Buy Today
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Our pick is Fiat Chrysler (NYSE: FCAU), and the company's dominance in the SUV market isn't the only reason we love it so much.
It's also pioneering the driverless car revolution.
Fully autonomous vehicles are not the future - they're here now, and Fiat Chrysler is in prime position to profit from the revolution.
Fiat Chrysler has partnered with Waymo, formally known as the Google self-driving car project, which is preparing to roll out more than 62,000 autonomous Chrysler Pacifica hybrid minivans.
Waymo is also currently testing its autonomous-driving technology in 600 modified Chrysler Pacifica hybrid minivans, mostly in California and Arizona.
The company has already recorded over 7 million self-driven miles, largely on complex city streets. To put that in perspective, it would take the average American driver over 300 years to complete the same mileage.
The partnership may even allow FCAU to license Waymo's technology to be incorporated in the production of future FCAU vehicles.
This is a savvy move on Fiat Chrysler's part. The company would not have to spend billions of shareholder dollars developing its own autonomous-vehicle software and technology from the ground up, like General Motors Co. (NYSE: GM).
We agree with FCAU's visionary CEO over the past decade, Sergio Marchionne, who thinks this technology will be commoditized in the not-so-distant future.
We also love FCAU stock right now because it is seriously undervalued by Wall Street. That makes this the perfect opportunity to buy...
Fiat Chrysler Shares Are Incredibly Undervalued
With a forward P/E ratio of 4.8 and forward EV-to-EBITDA of 2.1, Fiat Chrysler has the lowest projected multiples by far in the auto industry over the next 12 months.
Fiat Chrysler's four main competitors (GM, Ford, Toyota, and Honda) average a forward P/E ratio of 7.7 and a forward EV-to-EBITDA of 8.8.
Remember, the lower the better. And these valuation metrics don't get much lower or better than FCAU's.
Analysts agree with our assessment. Right now, 91% of analysts have either a "Buy," "Outperform," or "Hold" rating on the stock. They also have an average price target of $27.33. That represents 45% upside from here for FCAU.
And that may be conservative...
Legendary value investor Mohnish Pabrai, who is often referred to as the "next Warren Buffett," has recently unwound almost all of his investments because he feels most of the U.S. market is overvalued.
In his latest 13F filing, Pabrai revealed his fund, Dalal Street LLC, owns two companies - Fiat Chrysler and Ferrari - indicating that he still thinks these are two rarely undervalued companies.
If the "next Warren Buffett" thinks this stock is so cheap, you know other big players are paying close attention...
FCAU Could Be a Buyout Target Before the End of 2018
Former CEO Sergio Marchionne is primarily responsible for Fiat Chrysler's meteoric rise in recent years.
Fiat's merger with Chrysler in 2014 rescued the American company from bankruptcy. In less than two years, it returned to profitability and paid back all of its loans from the U.S. and Canadian governments.
Since spinning off Ferrari N.V. (NYSE: RACE) in January 2016, both companies have experienced tremendous growth, with Ferrari up 182% and Fiat Chrysler up 102%.
In the last 12 months, Fiat Chrysler has outperformed Ferrari 64% to 44%.
Hyundai's CEO, Chung Mong-koo, has taken notice and reportedly intends to buy enough shares to take over Fiat Chrysler.
If finalized, Hyundai and FCAU would become the largest automaker in the world.
With Marchionne stepping down from the CEO role over the weekend, a merger of this magnitude makes all the sense in the world.
If this happens, expect a short-term jump in FCAU shares. In the long term, we expect Hyundai to help Fiat Chrysler increase sales in Asia, a major market with limitless potential to boost the company's bottom line from SUV sales.
If the merger doesn't happen, we're still confident in Mike Manley, the new CEO the board of directors named over the weekend.
Over the past decade, Manley has spearheaded the tremendous growth of Jeep.
Jeep Cherokee and Jeep Compass sales were up 89% and 82%, respectively, from June 2017 to June 2018.
If you're looking to add an automaker to diversify your portfolio, look no further than Fiat Chrysler.
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