Auto suppliers stocks

[Spekulatius]

I am looking at cheap car supplier stocks

 

DLPH - the “ugly” part of the former Delphi after the Aptiva spinoff. DLPH product portfolio with drivetra8n components and electronics doesn’t look that bad though. Debt resulting from spinoff is a bit higher than I would like to see. They are supposed to do $4.7 in earnings this year.

 

LEA - seat and electronics. I like the seat business, because it won’t be disrupted, is customer facing and there are only few global competiors  in this space, the largest being ADNT. LEA has bought back a boatload of shares and trades at 8x earnings.

 

ADNT - see above. Spinoff from Johnson controls. They currently have execution issues and looking for a permanent CEO. I would guess that thru make it through, since they are the largest supplier in the car seat business and the balance sheet still look OK

 

I am not sure if those are better than auto stocks, as they are a bit pricier, but probably easier to create value, since they are smaller entities.

 

 

I would like o hear the opinion of board members. The chart look toxic, but the business is doing reasonable well.

[Packer16]

The tire companies are just as cheap if not cheaper & they have the aftermarket which generates a lion share of the profit & the demand is based upon miles driven & you will need more tires in electric cars.  A good US one is GT who is also buying back like 8% of its shares per year.

 

Packer

[Spekulatius]

The tire companies are just as cheap if not cheaper & they have the aftermarket which generates a lion share of the profit & the demand is based upon miles driven & you will need more tires in electric cars.  A good US one is GT who is also buying back like 8% of its shares per year.

 

Packer

 

I have owned the tire companies, before, Michelin. Sumitomo and Pirelli (a long time ago).I never liked GT because of their high leverage and because the company used to bleed market share over time. I need to look at them again.

[rb]

I don't know about tire makers. It's a very fragmented industry. Lots of players. Very competitive.

 

If you're looking at auto parts makers you may want to take a look at Magna. Tier 1 supplier,  they make everything including cars. They also have an electric car and autonomous driving division that may actually turn into something if that's your thing. The stock is down on trade fears. The company has had a history for bad corporate governance. They've done better in the past decade after kicking out the founder but still compensate upper management very well.

 

Also Continental put out a profit warning this week and the stock has taken a good beating.  They're another majour, but more connected to european OEMs.

[Packer16]

The interesting thing about tire makers is they all have RoEs north of 10% and some north of 15%.  They also have resilience to electric auto transition, have usage based upon miles driven and are more dependent upon the aftermarket than the OEM market. 

 

Packer

[Saluki]

I own a little bit Allison Transmissions. 

 

What I don't like about auto suppliers is that they sell to only a small group of companies, so their ability to demand high prices is limited. It's an Oligopsony (Our word of the day!).  ALSN , if i recall correctly, has more than half of the automatic transmission mkt for commerical vehicles, so I feel like it can command better prices.  When I used to own Douglas Dynamics (PLOW) which owned 65% of the aftermarket plow market, I realized that if someone has a way bigger market share than their competitors, not only do they make more money on volume, they tend to have better margins because they are better run.

 

Still, auto sales and therefore auto suppliers fates are tied to the economy and we're it's been 8 years since we've had a recession in the US, so that alone would make me leery of these if I had a big position in any stock with exposure to autos.

 

Lear has a better moat than, say, a brake pad maker because the engineering that goes into a seat is pretty complicated so it's not surprising that the auto makers farm that out to a specialist.  I hate hearing the name Lear though.  About 10 years ago I bought some options in Lear, then they went up 40% the NEXT DAY on takeover rumors.  I sat on them hoping to make more, then they went down and eventually expired worthless.  D'oh! 

 

[rb]

It is an it isn't. Yes, there's lots of parts makers, but if you look at tier 1 (your Magnas, Bosch, Valeo, Continental, Denso, etc) there's not that many of them. There's actually a pretty good relationship between OEMs and their tier 1 suppliers because they're dependent on them. Each OEM has maybe 2 or 3 suppliers they can buy from. But in some cases there's really only one.

 

So while the suppliers can't hike prices on the OEMs, the OEMs don't squeeze them either. In the end it evens out to decent returns. So it really comes down to valuation. If you buy them at a good price you'll do really well. Honestly right now valuations look pretty good for some of these guys.

[RadMan24]

Cooper-Standard got hit lately. Fortrex winning non-automotive licenses is catalyst. Use AI to speed innovative material design. http://www.rubbernews.com/article/20181019/NEWS/181019930/cooper-standard-named-finalist-for-pace-award

 

I sold few months ago in the 130s, but its now getting interesting again. China growth will affect business short term but they have a great business building up there. Euro will be hit because of reg delays in September. All in all, worth looking into.

[Shooter MacGavin]

Cooper-Standard got hit lately. Fortrex winning non-automotive licenses is catalyst. Use AI to speed innovative material design. http://www.rubbernews.com/article/20181019/NEWS/181019930/cooper-standard-named-finalist-for-pace-award

 

I sold few months ago in the 130s, but its now getting interesting again. China growth will affect business short term but they have a great business building up there. Euro will be hit because of reg delays in September. All in all, worth looking into.

 

Anyone ever take a look at CIE Automotive HQ'ed in Spain? Seem like a auto component roll-up with a great record (based on Stock price appreciation).  I don't know much about it but it's on my 2do list.