If there is any current reliable indicator that the U.S. economy is on the road to recovery, automobile sales could be the ultimate one (and a non-intended pun). The U.S. Seasonally Adjusted Annual Rate (SAAR) reached 17.4 million in August, the highest figure since January of 2006. Not only is that good news for the economy, it is great news for companies that are directly affected by new vehicle sales. What is even better? Those numbers are expected to grow as Americans replace aging vehicles that average 11.4 years old, the highest ever on record, according to research firm Polk.
So where do investors look to capitalize on this momentum? The car companies are a good choice, but both General Motors Co. (NYSE: GM) and Ford Motor Co. (NYSE: F) have had substantial runs, and GM in particular has faced a ton of headline risk and has big pending lawsuit settlements. The other good place to invest? Automotive vendors that sell directly to the manufacturers.
The research team at Baird highlighted the robust auto sales, and the vendors that could stand to benefit the most, in a new research report. We screened the report for the stocks rated Overweight.
BorgWarner Inc. (NYSE: BWA) was having a very solid year, but the stock rolled over after less than stellar second-quarter numbers and a very weak forward outlook. The stock has started to rally off the lows, and the lower entry point may be just the place for investors to find a cozy entry spot. The company recently announced that it will supply mini direct-acting variable force solenoid (VFS) for GM’s global front-wheel drive six-speed automatic transmission program. This mini direct-acting VFS will be incorporated in the 2015 models of Chevrolet, Buick and GMC vehicles.
Investors are paid a tiny 0.8% dividend. The Baird price target for the stock is $78. The Thomson/First Call consensus target is at $70.07. The stock closed Thursday at $63.05 a share.
Delphi Automotive PLC (NYSE: DLPH) may actually benefit from the current issues at General Motors, which used to own Delphi. The company has added a separate production line to expedite the supply of replacement parts for the huge GM recalls.
Investors are paid a 1.5% dividend. The Baird price target is $87 and the consensus estimate is higher at $82.92. Delphi closed Thursday at $70.25 a share.
Gentex Corp. (NASDAQ: GNTX) is a supplier of automotive automatic dimming rear-view mirrors, automotive electronics, dimmable aircraft windows and fire protection products to the fire protection market. The company posted in-line second-quarter earnings, but revenues fell a little shy of estimates.
Investors are paid a 2.2% dividend. The Baird price target for the stock is $43, and the consensus target is much lower at $34.43. The stock closed trading Thursday at $29.45.
Harman International Industries Inc. (NYSE: HAR) designs, manufactures and markets premium audio, visual, infotainment and integrated control solutions for the automotive, consumer and professional markets. The company’s well-known brands include AKG, Harman Kardon, Infinity, JBL and others. More than 25 million automobiles on the road today are equipped with Harman audio and infotainment systems.
Shareholders are paid a 1.1% dividend. The Baird price target for the stock is $140, and the consensus figure comes in at $121.38. Shares closed trading at $113.90 a share.
Johnson Controls Inc. (NYSE: JCI) is likely to enjoy an ongoing strong automobile market in 2014, and the August sales numbers from the big automotive companies did nothing to dampen that solid outlook. The company is a global diversified technology and industrial leader that may provide investors with a more diversified way to play the automotive growth story.
Shareholders are paid a 1.8% dividend. The Baird price target for the stock is set at $60, while the consensus number is $56.44. The stock ended Thursday at $48.10 a share.
One of the best parts to the growth story for investors is the record old age of Americans’ vehicles. This could mean a replacement cycle that goes on for two to three years. The Baird price targets for the stocks in their coverage universe are above the Wall Street consensus, which shows their conviction in the group as a whole.