3 Auto Companies With Bright Futures

Includes: CAAS, GM, JCI
by: Alex Shadunsky

The market has had a strong run over the past 6 months but some auto stocks inexplicably have been left behind. Furthermore, the economy has been getting stronger. In general, auto stocks are some of the most sensitive to macroeconomic and stock market conditions. As we are in a period of strength in the economy and the stock market, these three auto stocks haven't seen the same pickup one would expect. They should start to gain interest as they begin appearing on investors' radars as the consumer continues to strengthen.

General Motors (GM) is the behemoth of the group with a market cap of $38 billion. The company came out of its bankruptcy leaner and meaner. Despite that, it hasn't seen the type of investor interest that one would expect after such a transformation. The stock fell on Tuesday after weaker than expected auto sales number, however the emphasis on expectations here may have been misleading. As noted by an author in a Seeking Alpha article, March auto sales came in below expectations but they have been and remain exceptionally strong. The author further notes that "the auto sector remains one of the most impressive sectors of this recovery so far." Despite all of this optimism and pick up in auto sales, GM has seen its stock benefit very little and is down over 20% since its IPO out of bankruptcy. Analysts are very bullish on the stock and have a consensus price target of $35 for upside of nearly 50% on GM.

Johnson Controls (JCI) is a large company with a market cap of over $22 billion. The company spends energy on focusing to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and interior systems for automobiles. The stock has experienced some tough times recently but the long term story is still intact and it still expects to deliver "double-digit earnings increases" in 2012.

Last week, the stock was upgraded by a top tier bank. According to the bank, the provider of automotive interiors has 20% upside which would bring shares back to the levels at which the company traded during the first half of 2011. The bank believes that investors have become too bearish and it is more confident in the prospect for double digit earnings growth in the near term.

China Automotive Systems (CAAS) is a Chinese auto company that has exposure to the US. CAAS is a supplier of power steering components and systems to the Chinese automotive industry, operating through nine Sino-foreign joint ventures. The company offers a full range of steering system parts for passenger automobiles and commercial vehicles. The company currently offers four separate series of power steering with an annual production capacity of over 3.5 million sets of steering columns, steering oil pumps and steering hoses. CAAS has seen a pickup in its stock price recently and in the second half of 2011, insiders purchased the stock aggressively.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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