Auto Industry

  • 17 Sep
    Trade fears mean BWA is STILL a screaming buy

    Trade fears mean BWA is STILL a screaming buy

    The Trump administration’s aggressive trade policies with its partners have had global markets on edge for months. And even as headway is being made with Mexico, and pressure is intensifying on Canada to sign the agreement to redo NAFTA by the end of the month, and talks continue with the European Union, concerns and worries persist in particular over how quickly any kind of deal can or will be made with China, America’s largest trade partner. Those concerns have kept pressure on global markets, which also means that stocks in industries that are the most directly impacted by tariffs have experienced the greatest volatility. Stocks in the auto industry, or related to it, for example are among the ones that have seen the biggest swings in price.

    BorgWarner Inc. (BWA) is a good example. While the stock is down about 13.3% year-to-date, it’s actually down a little over 28% since reaching an all-time high in mid-January. I first wrote about this stock a month ago, with the stock at practically the same price it is at right now. That is one of the things that makes the stock interesting right now; while trade war fears have persisted since early spring, the stock has stabilized since July in the mid-$40 range. That has opened an interesting technical opportunity on a fundamentally very solid stock, since the longer the stabilization range holds, the more likely it is to break out of it and rally back to the upside.

    BWA’s fundamental profile is better than many of its brethren in the Auto Components industry, with good cash flow, conservative debt levels and operating margins that have actually improved over the last year despite increasing price pressures. Those pressures include exposure to foreign trade risk, but that is an element that up to this point has yet to be actually be felt. It is true that the stock isn’t immune to the potential long-term effects of trade conflict, but it is also true that most of those effects for now are inferred. If Canada yields as many seem to expect to pressure from the U.S. and from Mexico to join their agreement, look for the market to respond positively, with momentum swinging in favor of the Trump administration versus the E.U. and China. Either way, at its current prices, BWA offers an incredibly attractive value proposition right now.



    Fundamental and Value Profile

    BorgWarner Inc. is engaged in providing technology solutions for combustion, hybrid and electric vehicles. The Company’s segments include Engine and Drivetrain. The Engine segment’s products include turbochargers, timing devices and chains, emissions systems and thermal systems. The Engine segment develops and manufactures products for gasoline and diesel engines, and alternative powertrains. The Drivetrain segment’s products include transmission components and systems, all-wheel drive (AWD) torque transfer systems and rotating electrical devices. The Company’s products are manufactured and sold across the world, primarily to original equipment manufacturers (OEMs) of light vehicles (passenger cars, sport-utility vehicles (SUVs), vans and light trucks). The Company’s products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications. BWA’s current market cap is $9.4 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings increased by almost 23% while revenues posted an increase of nearly 14%. In the last quarter, the increase in earnings was more modest at a little over 7%, while sales declined by 3.24%. The company operates with a narrow margin profile, with Net Income running at only about 5% of Revenues for the last twelve months; however this measurement nearly doubled to 10% in the last quarter.
    • Free Cash Flow: BWA’s free cash flow is healthy, at a more than $515 million. While the number declined since the beginning of the year, it has increased since late 2015 from only about $150 million.
    • Debt to Equity: BWA has a debt/equity ratio of .52. This number reflects the company’s manageable debt levels. The company’s balance sheet indicates operating profits are sufficient to service the debt they have.
    • Dividend: BWA pays an annual dividend of $.68 per share, which translates to an annual yield of about 1.5% at the stock’s current price.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for BWA is $19.41 per share and translates to a Price/Book ratio of 2.31 at the stock’s current price. Their historical average Price/Book ratio is 2.96. That suggests the stock is trading right now at a discount of a little over 28%, and that puts the stock’s long-term target above $57 per share. Additionally, the stock is currently trading more than 78% below its historical Price/Cash Flow ratio. The stock’s all-time high was reached in mid-January of this year at around $58, which means projecting a 75% increase in the stock may be speculative, especially under current market conditions; however it also suggests there is a good argument for the stock to retest its highs, especially if the broader market can maintain its long-term upward bullish strength.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: The red diagonal line measures the length of the stock’s downward trend from mid-April to its bottom in July of this year; it also informs the Fibonacci trend retracement lines shown on the right side of the chart. The stock found major support, and the end of its downward trend around $42 in early July, and has used that price area as a pivot low support point on multiple occasions since then. The top end of its range since then is around $46 per share, and the stock would need to break above that level to stage a legitimate trend reversal, with incremental resistance points around $48 and $50.
    • Near-term Keys: If you’re a short-term trader looking for a good opportunity with this stock, a good signal to buy the stock or to work with call options would come if the stock breaks above $46 per share. The stock’s current support at around $42 per share also marks an important signal point for a potential bearish set up, as a break below that point would be a good time to consider shorting the stock or working with put options. If you’re willing to work with a long-term time horizon, and you don’t mind the potential volatility that could come with continued market uncertainty and trade concerns, its current price also offers an excellent starting point for a long-term, value-based opportunity.


  • 06 Sep
    U.S. – Canada trade fears have created a great value opportunity for this Detroit supplier

    U.S. – Canada trade fears have created a great value opportunity for this Detroit supplier

    Last week the Trump administration announced it had made a deal with Mexico to rework the two countries’ two-and-a-half decades long trade agreement. There is a third party in that agreement, of course, since NAFTA originally included the U.S., Mexico and Canada. The move has clearly put more pressure on the Canadian government to compromise, although to this point it doesn’t appear much more progress on that front has been made.

    Tensions between the U.S. and Canada have revolved primarily around tariffs on autos, although other goods have been involved as well. Concern around trade issues between the two countries have weighed on Canadian stocks that rely heavily on partnerships with U.S. business. Magna International (MGA) is a good example; since late May, when the stock hit an all-time high at around $67.50, the stock has lost about 25% of its value. Trade issues between the U.S. and Canada aren’t over, and that means that momentum for stocks like MGA could continue to be mostly bearish; at the very least, investors who are interested in this stock should expect to see plenty of volatility in the weeks and months ahead as the market decides what direction the stock should follow.



    Over the last month alone, the stock has dropped about 10%, after the company missed estimates in its latest earnings report. That pushed the stock into an even more decidedly bearish near-term profile, as the stock crossed below its 200-day moving average line. This moving average acts as an important visual indicator of a stock’s long-term trend for most technicians, and so a move below that line is usually taken as a clear sign the stock’s current trend is going to keep moving down. Over the last couple of weeks, however, the stock has shown some interesting resilience, finding support around $52 per share. Despite the market’s reaction to their latest report, the truth is that the earnings picture is actually pretty good for MGA, and the overall fundamentals for this company remain quite good. 

    The company’s earnings report did include tariffs as a risk element in the third and fourth quarters of the year, and that is probably another big reason the stock has continued to drop. I think it’s worth pointing out, however that the U.S. – Mexico announcement took the market by surprise and wasn’t expected; to me that means that for all the posturing that has gone on (and continues) between the countries involved, it’s really all about what happens behind closed doors. I think Canada it’s ultimately going to be in the best interest of both the U.S. and Canada to bring all three American trading partners back together again, and so most of the bearish sentiment around stocks like MGA is really just creating good opportunities to pick up some great companies at very nice valuation levels.



    Fundamental and Value Profile

    Magna International Inc. (Magna) is a global automotive supplier. The Company’s segments are North America, Europe, Asia, Rest of World, and Corporate and Other. The Company’s product capabilities include producing body, chassis, exterior, seating, powertrain, electronic, active driver assistance, vision, closure, and roof systems and modules, as well as vehicle engineering and contract manufacturing. The Company has over 320 manufacturing operations and approximately 100 product development, engineering and sales centers in over 30 countries. It provides a range of body, chassis and engineering solutions to its original equipment manufacturer (OEM) customers. It has capabilities in powertrain design, development, testing and manufacturing. It offers bumper fascia systems, exterior trim and modular systems. It offers exterior and interior mirror systems. It offers sealing, trim, engineered glass and module systems. It offers softtops, retractable hardtops, modular tops and hardtops. MGA has a current market cap of about $18.2 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings grew almost 13%, while Revenues grew a little over 6%. Growing earnings faster than sales is hard to do, and generally isn’t sustainable in the long term; however it is also a positive mark of management’s ability to maximize a company’s business operations. In the last quarter, the picture turned negative, with earnings decreasing a little over 9% and sales declining almost 5%. That could be a first, early indication of impact from tariffs on costs, both for MGA as well as for its customers.
    • Free Cash Flow: MGA’s free cash flow is healthy, at a little more than $1.9 billion. This number has been somewhat cyclic from one quarter to the next, but has shown a general, upward stair-step pattern of growth going back to the last quarter of 2016.
    • Dividend: MGA pays an annual dividend of $1.32 per share, which translate to an annual yield of 2.48% at the stock’s current price. 
    • Return on Equity/Return on Assets: These numbers are very strong. ROE is 19.72 and ROA is 8.94.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for MGA is $33.97 and translates to a Price/Book ratio of 1.56 at the stock’s current price. The stock’s historical average Price/Book ratio is 1.94, suggesting the stock is nicely undervalued by about 24%; at par with its average, the stock should be trading at about $66 per share. Working with $66 as a long-term target is even more justified by looking at the stock Price/Cash Flow ratio, which is currently 30% below its historical average. That would put the stock in range to test its all-time highs and in position to start making new ones.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: After following a nice upward trend until May, the stock peaked at around $67.50 before dropping back its current level. The gap you see in early August came in conjunction with the company’s last earnings report, and in fact that gap is providing resistance right now against any further movement upward for the stock. I already alluded to its 200-day moving average (not shown); the stock is about $5 per share below that line, and would need to break above it to stage any kind of new upward trend. A drop below $52 per share would mark a break below the stock’s long-term support level and could provide bearish momentum for a continued decline to as low as $45 in fairly short order.
    • Near-term Keys: The stock’s most current resistance is at around $56, from a pivot high just about a week ago; if the stock can break that level, there could be a good short-term opportunity to buy the stock or work with call options. If you like the stock’s value potential right now, and don’t mind dealing with what I think will be quite a bit of volatility for the time being, this could be a great time to go ahead and take a position with a long-term time frame in mind. If you prefer to work with the bearish side of the market right now, wait to see if the stock drops below $52; if it does, consider shorting the stock or working with put options.


  • 04 May
    Doing This One Thing Can Help You Save $1 Million

    Doing This One Thing Can Help You Save $1 Million

    One of the things that strongly impact a life but is rarely discussed is buying a car.

    We are bombarded with car commercials, and it seems so important to regularly buy a new car. So, as I think personal finance is a step above and more important than actual stock picking, today I’ll share with you my strategy regarding cars which has been extremely helpful during my life and has enabled me to do so many wonderful things.

    Let me show you how anyone can save a million by buying 5-year old cars instead of new cars. 




    More →

  • 21 Mar
    This Industry Is About To Be Disrupted In A HUGE Way

    This Industry Is About To Be Disrupted In A HUGE Way

    • There are three trends of huge importance in the car industry: electric drive, autonomous drive, and transport as a service.
    • It’s important how this could impact margins and sales.
    • A trend where everything becomes cheaper isn’t a trend you want to be invested in with a few exceptions.



    Introduction

    This past weekend, I discussed Ford from a cyclical sector perspective but there is so much going on in the automotive sector making it a much different environment from what it has been in the last 100 years.

    Today, we’ll discuss what’s changing in the automotive industry and how that will impact producers over the next 10 years. The secular trends I discuss in this video are the shift from internal combustion engines to electric-powered, the shift from active-drive to autonomous, and the shift from user-owned to drive-for-hire services, think of Uber, Lyft, Didi, etc. More →

  • 17 Mar
    Ford Is Cheap, But Should You Buy It Now?

    Ford Is Cheap, But Should You Buy It Now?

    • Today, we’ll discuss what’s most important when analyzing a company like Ford: fundamentals, the economy, sales, intrinsic values, cars, and the stock price.
    • When investing in Ford, you have to think about what the stock price will be when the earnings turn negative. They always do.
    • I’ll show you 3 models that will explain the current price for Ford.



    Why Is Ford So Cheap?

    Many see Ford (NYSE: F) with a price to earnings ratio of just 5.6 and a dividend yield of 5.66% as an extreme bargain. That might be true at first glance, but those who think so haven’t seen economic cycles. More →

  • 22 Nov
    Here’s Why You Need To Invest In The EV Trend

    Here’s Why You Need To Invest In The EV Trend

    • The EV trend is here—that’s a certainty—but the question is, how big will it be?
    • Another important question is how fast will the disruption happen?
    • It’s interesting that the more real business strength an EV manufacturer has, the cheaper it is.



    Introduction

    We all know one thing, electric vehicles (EV) will be the future.

    Many countries don’t have oil and will do their best to switch to electric vehicles with the goal of lowering pollution which is a huge issue, especially in China. More →

    By Sven Carlin Auto Industry Investiv Daily
  • 05 Oct
    The Electric Vehicle Trend Will Be Explosive – Here’s How To Profit On It

    The Electric Vehicle Trend Will Be Explosive – Here’s How To Profit On It



    • The latest news surrounding the electric vehicle market is extremely positive.
    • However, not every related investment will do well. We’ll discuss car manufacturers, graphite, cobalt, nickel, copper, and lithium.
    • There’s one way to profit from the growing trend that carries little risk, is already profitable, and definitely offers high upside in the next decade.

    Introduction

    We all know transportation will be electric in the future. However, this doesn’t mean that every investment in the sector is a smart investment.

    A great example of how investments in hot trends can work out is Amazon (NASDAQ: AMZN), and this example is the best-case scenario out there. More →

  • 11 Sep
    Out Of This World Debt Levels Will Damn Future Generations

    Out Of This World Debt Levels Will Damn Future Generations

    • Debt levels are the key driver of economic growth in developed countries. So keep an eye on debt.
    • The velocity of money, household debt, car loans and sales aren’t telling a good story.
    • Globally, the situation isn’t much better. However, there are a few exceptions.

    Introduction

    In today’s article, I’ll analyze the current global debt environment.

    Debt is an economic factor that is unwatched as long as things are going well but as soon at things turn south, everyone will be screaming about a debt crisis and the end of the financial world as we know it.

    Given this, it’s extremely important to know what is going on, how sustainable the current debt levels are, what the impact of debt on the economy is, how to position your portfolio, and perhaps even how to take advantage of potential black swans arising from future debt instabilities. More →

  • 06 Jul
    The Only Way To Invest In The Automotive Sector Today

    The Only Way To Invest In The Automotive Sector Today

    • Automotive stocks are best bought in a recession. I’ll explain how patience pays off.
    • There are no indications of a recession, but car sales have already reached their ceiling.
    • However, a new trend is booming and you may want to expose your portfolio to it.

    Introduction

    The automotive industry is a perfect example of sector cyclicality. What’s important for us investors is that cyclicality offers great investment opportunities. However, a lot of patience is necessary as such opportunities usually only arise once in a decade and only when there is a recession.

    If we take a look at Ford’s (NYSE: F) stock price over the last 30 years, we can see how stock price dips coincide with economic recessions. The stock was the cheapest in 1991, 2002, 2008, and 2012 when there was a recession in Europe. More →

  • 10 May
    The Trouble The Market Refuses To See

    The Trouble The Market Refuses To See

    • GDP growth is at three year lows, car sales have dropped 11%, and the biggest sector contributing to new employment is about to go into oversupply.
    • The FED is in a stalemate situation. It should raise interest rates and deleverage, but it’s already too late as the economy, government, and population is hooked on low interest rates.

    Introduction

    The market’s behavior reminds me of the three wise monkeys. One doesn’t see, the other doesn’t speak, and the third doesn’t hear. The VIX index, a measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices, indicates that investors expect stability and didn’t even react to the bad news coming from the automotive industry, jobs, and a very important bankruptcy. More →

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