Buy, Hold, or Sell These 3 Auto Stocks?

Despite concerns about the overall economy, the United States is expected to see an increase in auto sales, as supply chains stabilize. Against this backdrop, we look into auto stocks like BorgWarner Inc. (BWA), Gentex Corporation (GNTX), and Superior Industries International, Inc. (SUP) as investment choices.

In August, U.S. new vehicle sales reached 1,341,169 units, marking a 16.2% increase from August 2022 and a 2% rise from July 2023. As supply chains stabilize, this uptick in new car sales signals a revival in the automotive sector.

Moreover, the automotive industry is anticipated to experience a 6.9% CAGR until 2030, reaching a market value of $6.07 trillion. This growth is fueled by a rising demand for high-end passenger vehicles, urbanization, and increased infrastructure investments in the economy.

The global auto industry is also undergoing a rapid change as Electric Vehicles (EVs) become mainstream. According to the International Energy Agency (IEA), sales of electric cars will grow 35% to hit 14 million this year.

Furthermore, due to the rapid proliferation of technology and increasing R&D expenditures, Market Research Future expects the auto parts market to be worth $755 billion by 2026 and between 2023 and 2032, it can attain a growth rate of 7.5%.

Considering these positive trends, let's explore the fundamentals of the featured Auto Parts stocks, starting with the third stock.

Stock #3: BorgWarner Inc. (BWA)

BWA provides solutions for combustion, hybrid, and electric vehicles worldwide. The company segments include, Air Management; Drivetrain & Battery Systems; and ePropulsion.

On August 2, it was reported that BWA had been awarded an additional High Voltage Coolant Heater (HVCH) business with a premium European OEM for its mid-size electric vehicle platform. This volume extension is expected to be beneficial for the company.

On the same day, the company announced that it will supply a new integrated drive module (iDM) to a leading Chinese OEM. This presents a new opportunity for BWA to expand in a new energy vehicles market.

BWA’s trailing-12-month ROTC of 8.70% is 42.5% higher than the industry average of 6.11%. Its trailing-12-month ROTA of 5.48% is 40.7% higher than the 3.89% industry average.

BWA’s net sales increased 20.2% year-over-year to $4.52 billion for the second quarter that ended June 30, 2023. The company’s gross profit increased 21.9% from the same period last year to $868 million.

In addition, its adjusted operating income increased 36.2% from the year-ago value to $474 million. Also, its adjusted EPS came in at $1.35, representing an increase of 28.6% from the prior-year period.

Analysts expect BWA’s revenue to increase 8.6% year-over-year to $15.65 billion for the fiscal year ending December 2024. Its EPS is expected to increase 15.5% year-over-year to $4.38 for the same period. It surpassed the consensus EPS estimates in three of the four trailing quarters, which is impressive.

The stock has gained 40.4% over the past year and 15% year-to-date to close the last trading session at $40.76.

BWA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

BWA has a B grade for Value. Within the A-rated Auto Parts industry, it is ranked #26 out of 59 stocks. Click here for the additional POWR Ratings for Growth, Momentum, Stability, Sentiment, and Quality for BWA.

Stock #2: Gentex Corporation (GNTX)

GNTX designs, develops, manufactures, markets, and supplies digital vision, connected cars, dimmable glass, and fire protection products internationally. It operates through Automotive Products and Other segments.

On September 18, GNTX opened a technology hub in downtown Grand Rapids to attract top engineering and software talent, enhancing its capabilities in various tech fields. This expansion reflects GNTX's commitment to growth and innovation in the region, strengthening its position as a leading technology company.

In the same month, GNTX announced a quarterly cash dividend of $0.12 per share, payable to shareholders on October 18, 2023. Its annual dividend of $0.48 yields 1.50% at prevailing prices, while it has a four-year average dividend yield of 1.62%.

GNTX’s trailing-12-month net income margin and ROTA of 17.23% and 14.70% are 290.3% and 277.4% higher than the industry averages of 4.42% and 3.89%, respectively.

For the fiscal second quarter that ended June 30, 2023, GNTX’s net sales stood at $583.47 million, up 25.9% year-over-year. Its gross profit increased 30.1% from the prior-year period to $193.08 million.

GNTX’s income from operations came in at $127.29 million, registering an increment of 48.4% from the year-ago value. Its net income and net income per share grew 50.8% and 51.6% year-over-year to $109.16 million and $0.47, respectively.

GNTX’s EPS is expected to increase 41.4% year-over-year to $0.44 for the fiscal third quarter ending September 2023. The company’s revenue for the same quarter is expected to increase 15.3% from the same period last year to $569.11 million.

Shares of GNTX have gained 30.1% over the past year and 19.3% over the past six months to close the last trading session at $31.96.

It’s no surprise that GNTX has an overall rating of B, which translates to Buy in the POWR Ratings system.

The stock has a B grade for Stability, Sentiment, and Quality. It is ranked #24 within the same industry. To see the additional ratings of Growth, Value, and Momentum, click here.

Stock #1: Superior Industries International, Inc. (SUP)

SUP designs, manufactures, and sells aluminum wheels to original equipment manufacturers and aftermarket distributors in North America and Europe. It offers its products under the ATS, RIAL, ALUTEC, and ANZIO brands.

On August 31, SUP announced that its subsidiary in Germany, Superior Industries Production Germany GmbH (SPG), had entered into Protective Shield Proceedings, which is a court-administered reorganization. The company’s actions are expected to drive long-term improvement in margins and cash flow, while an efficient footprint supports long-term growth.

SUP’s trailing-12-month ROTC of 7.19% is 17.8% higher than the industry average of 6.11%, while its trailing-12-month asset turnover ratio of 1.39x is 38.7% higher than the 1.00x industry average.

For the fiscal second quarter of 2023, SUP’s adjusted EBITDA increased 1.4% year-over-year to $52 million. Its cash balance increased 48.1% from the prior-year period to $181.10 million. As of June 30, 2023, the company’s net debt came in at $457.50 million, down 2.8% from $470.70 million, as of June 30, 2022.

SUP’s revenue for the first quarter of 2024 (ending March 2024) is expected to increase 3.8% year-over-year to $395.40 million. Its EPS for the same quarter is expected to increase 87.8% year-over-year.

Over the past five days, the stock has gained 2.2% to close the last trading session at $3.22.

SUP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.

SUP has a B grade for Growth, Value, Stability, and Sentiment. It is ranked #19 in the Auto Parts industry. Click here to see the POWR Ratings for Momentum and Quality.

What To Do Next?

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BWA shares were trading at $41.29 per share on Monday afternoon, up $0.53 (+1.30%). Year-to-date, BWA has gained 17.77%, versus a 14.08% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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