Companies Leveraged to Benefit From Auto Industry Rebound

Includes: AONEQ, DAN, F, GM, LEA, SIRI, VC
by: NakedValue


The U.S. automobile Industry is buzzing again after struggling for years. As pointed out in a recent article from the AP, the auto industry's rebound is clearly illustrated by a sharp increase in recent hiring. Since June 2009, auto industry employment in the U.S. has jumped from 623,000 to 700,000 people. In addition to the industry wide trends, individual companies are also performing well. During the quarter ending March 31, 2011, General Motors (NYSE:GM)'s sales were $36.19 billion, a 15% jump from a year ago period. During the quarter ending March 31,2011, Ford Motor (NYSE:F) had sales of $33.11 billion, a 5% increase from a year ago period.


Investors bullish of the U.S. auto industry may want to focus on auto names like Ford Motor (F) and General Motors (GM). GM has a trailing P/E of 7.54, a forward P/E of 6.42 and a price/sales of 0.34. F has a trailing P/E of 7.77, a forward P/E of 6.91 and a price/sales of 0.41. Both companies trade at very reasonable valuations, especially if auto sales continue to grow and the companies can continue to establish their brands abroad.


But there are other companies leveraged to continued strength in the auto industry and as such, investors should take a closer look. Here are some names to watch:

  • Sirius XM Radio (NASDAQ:SIRI) - The satellite radio company may seem like an unlikely candidate for this list, but its competitive advantage to date has been built on its controlled bandwidth and its strong (and growing) adoption throughout the automobile industry. Between 2008 and 2010, the company's ending subscribers grew 6% to 20.19 million. During this same period, subscribers attributed to OEM grew 31% to 13.1 million. The company's subscriber growth has been attributed solely to OEM, and if anything, this contribution has only been masked by the declining contribution from retail sales. We are bullish of SIRI and previously listed them among 5 Stocks That Could Double in Price, but any major slow down in the auto industry would be a headwind for the stock.
  • Visteon Corp (NYSE:VC) - The auto parts manufacturers all have different exposures, but when things are all said and done, they are largely derivatives of the auto industry. While VC is still very dependent on the success of the U.S. auto industry, the company also has other catalysts and exposures that make it a play on the fast growing Asian auto markets. VC has a 50 percent stake in Yanfeng Visteon Automotive Trim Systems, a Chinese auto supplier, and a 70 percent stake in Halla Climate Control, a Korean auto supplier. The company's share of revenues from North America have decreased from 29% in 2008 to 20% in 2010. The sum of the parts story has driven the stock price since its reorganization. The Asian assets are clearly desirable, but up until this point, there has been much less enthusiasm about VC's domestic business. If the U.S. auto industry continues to improve, the VC sum of the parts story stands to benefit meaningfully.
  • Lear Corp (NYSE:LEA) - The company's revenues are diversified across regions and relatively diversifed across customers. In 2010, 34% of sales were in North America.
  • A123 Systems, Inc (AONE) - The company designs and manufactures lithium-ion batteries. Not only does its technology provide an interesting opportunity in the current market, its relationship with General Electric Capital Corp could provide a floor for the stock price. AONE is perhaps the largest beneficiary of a strong auto industry, because it ensures continued appetite to help the company and the alternative energy industry grow. For example, U.S. Senator Debbie Stabenow from Michigan is pushing legislation that would create $2 billion worth of funds to benefit the advanced vehicle battery industry. As one of the industry's largest players, AONE could stand to benefit meaningfully from such funds. In addition, while the company currently loses money, it has around $250 million in cash and investments that give shareholders some margin of safety.
  • Dana Holding Corp (NYSE:DAN) - Ford Motors accounted for 19% of the company's sales in 2010, but it was the only customer to account for more than 105 of sales. DAN's other large customers included: PACCAR, Hyundai, Nissan (OTCPK:NSANY) and GM.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GM, VC, SIRI, AONE over the next 72 hours.