The automotive industry witnessed a shift in trend toward spacious and large SUVs, and crossovers during this year, backed by high employment rate and favorable economic conditions. However, tit-for-tat tariffs slapped by the United States and China have partially slowed revenue growth of auto companies.

Year to date, Auto stocks have underperformed the broader market. The industry has lost around 21% over this period, lagging the Zacks S&P 500 composite’s corresponding fall of 0.8%.

Over the past few years, the sector has been going through a wave of changes, ranging from ever-changing customer preferences to stricter emission reduction policies. Players in the sector have to comply with the fuel-emission standards for vehicles, which require upgraded technology. For this, the companies have to continue focusing on technological innovation apart from developing futuristic electric and autonomous vehicles. Furthermore, the players have to keep a check on their bottom lines, strained by raw material costs and tariffs.

Regardless of such imminent challenges, Moody’s projects that the global automotive manufacturing will remain unchanged in 2019 due to constant demand in all of the key markets. This financial research and analysis firm expects global light-vehicle sales to grow in a modest 1.3% in 2019.

Why There's Growth Ahead for the Sector

Tariff Slash: China plans to cut import tariffs to 15% from the current payout of 40% on vehicles imported from the United States. Although not finalized so far, the probable rate reduction in China will place U.S. imports at par with tariffs paid for products manufactured in other countries. The tariff reduction will benefit automakers that manufacture in the United States, who had to raise vehicle prices in China owing to high tariffs. Apart from being the number one auto market in terms of volume, China is among the first-mover countries to launch mobility services. This places the country among the top markets for the auto sector.

Demand for Spacious Cars: While the industry and consumers are enthusiastic about electric and autonomous vehicles, rising number of consumers are dumping passenger cars and opting for SUVs. In this changed situation, automakers are launching a range of new and technically-advanced crossovers, trucks, and SUVs in the market. LMC Automotive has reported to Quartz that SUVs in the United States will account for 35% of light-vehicle global sales in 2018 compared with only 15% in 2013. In fact, the figure is expected to cross the 50% mark by 2020. As the electric and autonomous vehicles are at their developmental stage, big and spacious cars like SUVs will be growth engines for the auto sector in 2019, thus, helping the players to boost their bottom lines.

Growth Opportunities: Vehicle purchases in the emerging markets are climbing record-high levels. In fact, the automotive industry is witnessing a continuous shift in volume and market share toward emerging markets. In 2019, Moody’s projects robust growth for the auto sector in emerging economies — consisting India, Brazil and Russia — spurred by improved macroeconomic conditions. This provides ample opportunity for the players to gain a large portion of the global manufacturing capacity.

Choosing the Winning Stocks

We attempt to find out a few auto stocks, which are likely to give a stellar performance in 2019. In order to select these auto gems, we relied on their VGM Score and Zacks Rank.

Our research shows that stocks with a VGM Style Score of A or B, when combined with Zacks Rank #1 (Strong Buy) or #2 (Buy), offer the best investment opportunities in the investing space. You can see the complete list of today’s Zacks #1 Rank stocks here.

Allison Transmission Holdings, Inc. ALSN: Headquartered in Indianapolis, IN, Allison currently sports a Zacks Rank #1 and a VGM Score of A. The company expects earnings growth of 6.3% for 2019. In the trailing four quarters, it delivered average positive earnings surprise of 29.9%. The company also has long-term expected earnings per share (EPS) growth rate of 10%.

Oshkosh Corporation OSK: This Oshkosh, WI-based producer of vehicle bodies presently carries a Zacks Rank #2 and a VGM Score of A. The company expects earnings growth of 8.9% for 2019. Oshkosh has also delivered positive earnings surprise in each of the trailing four quarters, the average positive surprise being 31.8%. Its long-term projected EPS growth rate is 14.6%.

Honda Motor Co., Ltd. HMC: This Japanese auto manufacturer currently carries a Zacks Rank #2 and VGM Score of B. The company expects earnings growth of 2.4% for 2019. It delivered positive earnings surprise in each of the trailing four quarters, the average positive surprise being 29.7%. Its long-term projected EPS growth rate is 2.9%.

Cooper Tire & Rubber Company CTB: This Findlay, OH-based manufacturer of tires and related products presently has a Zacks Rank #2 and a VGM Score of B. The company expects EPS growth rate of 31.3% for 2019. It has delivered earnings surprises in two of the trailing four quarters, the average positive earnings surprise being 17.5%. Cooper Tire has long-term expected earnings per share growth rate of 4%.

General Motors Company GM: This Detroit, MI-based largest U.S. automaker is another attractive choice at present, with a Zacks Rank #2 and a VGM Score A. The company has long-term EPS growth rate of 8.5%. It delivered positive earnings surprises in three out of the trailing four quarters, the average positive earnings surprise being 21.8%. For 2019, the earnings estimates for the company increased by around 0.7% over the last 60 days.

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
General Motors Company (GM) : Free Stock Analysis Report
 
Honda Motor Co., Ltd. (HMC) : Free Stock Analysis Report
 
Oshkosh Corporation (OSK) : Free Stock Analysis Report
 
Allison Transmission Holdings, Inc. (ALSN) : Free Stock Analysis Report
 
Cooper Tire & Rubber Company (CTB) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.