Cars and Drivers

Deutsche Bank Top Auto Stock Picks

Despite a first-quarter gross domestic product number that came in below expectations, the consumer is continuing to do his fair share to help drive the economy. One of the big components in retail purchasing that has stood out is automobile sales. With sales in the United States and China heating up, any upturn in the moribund European market could prove to be a windfall for not only auto sales, but auto parts sales as well.

In a newly released report, the auto analysts at Deutsche Bank A.G. (NYSE: DB) point out that skepticism surrounding the outlook for European auto demand recently increased following a sharp 13% year-over-year decline in German auto sales during the first quarter. It still sees some value opportunity in this auto stock sector.

Germany had been one of the few resilient markets in the region. Many investors saw this as a sign that the European auto downturn was spreading. On the contrary, the team at Deutsche Bank thinks the decline was misinterpreted, and that it was primarily related to tough comparisons against a surprising spike in German sales during the first quarter of last year. With data that suggests that European auto sales could turn around and work in tandem to bolster the already strong U.S. and Chinese markets, Deutsche Bank has put together a list of stocks to buy that may exploit the growth potential.

General Motors Co. (NYSE: GM) is the only automaker to find a spot on the Deutsche Bank list of names to buy. Trading at a reasonable 10.45 earnings, GM already is seeing a strong pick up in Chinese sales. The Thomson/First Call consensus price target for the stock is $35.

Dana Holding Corp. (NYSE: DAN) is actually an industry laggard, as the stock has underperformed its peers. The Wall St. estimate for the stock is $20.

Delphi Automotive PLC (NYSE: DLPH) has not underperformed, recently hitting 52-week highs in trading. The consensus target for the stock is $46.50.

Lear Corp. (NYSE: LEA) also is hitting 52-week highs, as well as returning capital to shareholders in the form of an $800 million stock buyback program. The consensus target for this top name is $62.

Tenneco Inc. (NYSE: TEN) is one of the top suppliers to GM, and that relationship is helping to drive earnings growth. The consensus estimate for the stock is $45.

TRW Automotive Holdings Corp. (NYSE: TRW) rounds out the Deutsche Bank list of stocks to buy. With four separate segments driving earnings growth, the stock may be poised for a strong upward swing. The consensus price target is $71.

With the U.S. auto market back in top gear, investors are once again favoring the sector. Sales numbers are picking up substantially as buyers unleash pent-up demand upon the market. Most analysts who write about the car market focus on the major U.S. auto manufacturers as a means of getting in on this trend. However, investors often overlook a number of companies that provide those automakers with parts and support. That is exactly why the Deutsche Bank list is dominated by the top names in the parts sector.

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