Although auto parts stocks took a hit last Friday after Toyota (NYSE:TM) forecast its 2011 profit would slip by 31%, the market’s knee-jerk reaction to the news doesn’t signal gloom and doom for solid names with strong fundamentals.
Five of the more interesting players in the space are TRW Automotive (NYSE:TRW), Autoliv (NYSE:ALV), Magna International (NYSE:MGA), Johnson Controls (NYSE:JCI) and Tenneco (NYSE:TEN). Those stocks fell by an average of 3% on Friday on the Toyota news, but each has an edge that can deliver value.
True, the entire automotive sector is still struggling through the aftermath of the March 11 earthquake, tsunami and nuclear crisis in Japan. The automotive supply chain – which these days is more of a tightly choreographed dance than an old school inventory and production march – was devastated by the disaster.
The triple-witching crisis destroyed key Japanese parts suppliers and crippled parts production. Toyota’s revised profit forecast is a direct result of the disaster. But there is good news in the automotive sector: Parts suppliers are getting back online and production is ramping up. And many industry insiders believe that auto parts production – and delivery – will be nearly back to normal by August.
That bodes well for the automotive sector in general. But there are other reasons to note these stocks in particular:
1. Autoliv. The company’s edge is its powerhouse position in automotive safety systems such as airbags – it can count all major global auto manufacturers as its customers. Autoliv’s sales last year totaled almost $7.2 billion – an increase of 40% over 2009. On Monday, Autoliv announced it is expanding its steering wheel capacity in Brazil, a move that further strengthens its position in a market forecast to grow 25% in the next three years. At $70.05, the stock is 51% above its 52-week low.
2. Johnson Controls: The opportunity south of the border is not lost on JCI, which on Monday launched a joint venture with MAC to produce and sell lead-acid batteries in Central and South America. JCI already boasts a strong position in advanced battery development for fuel-efficient and sustainable vehicles. At $36.07, the stock is 38% higher than its 52-week low.
3. TRW Automotive: This is is another major player in the auto supply sector, with 2010 sales of $14.4 billion. The company’s edge is in high-tech active and passive safety systems, including advanced airbags. In the wake of new legislation to reduce the risk of vehicle occupants being ejected, TRW has developed stiffer curtain airbags to help restrain occupants. It also is using cold gas and hybrid inflator technologies to keep the curtain airbags inflated longer than traditional approaches. At $52.36, TRW stock is trading nearly 100% over its 52-week low.
4. Magna International: Magna’s edge is its strong position in China, the world’s highest potential auto market. The Canadian company’s Cosma International automotive body and chassis unit reached a deal in China with Guangzhou Automobile Group Component. The resulting joint venture will be one of the largest body stamping and assembly plants in that part of China. At $44.98, the stock is 45% higher than its 52-week low.
5. Tenneco: The company’s global strength in providing advanced automotive technology – particularly in the areas of emissions control and fuel economy – is a significant edge. Last month, Tenneco reported first-quarter net income of $47 million — nearly seven times its $7 million made a year earlier. The company is investing $21 million into its German operations this year to expand its presence in that country and support its customers’ light and commercial vehicle launches. At $37.31, Tenneco stock is trading more than 93% over its 52-week low.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks mentioned here.
