The average automobile industry stock, as represented by the Global X Auto ETF (VROM), is up almost 20% YTD, as the improving economy and easing financing bolsters growth in the sector. Furthermore, there is also emerging a resurgence of sorts in domestic automobile manufacturing, aided by strength in the local markets, as well as rising exports.
In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the auto group companies that are being accumulated and those being distributed by legendary or guru fund managers, such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, that are well-known for their savvy in picking winning stocks year after year. Taken together, these guru managers are bearish on the group, cutting a net $184 million in Q4 to their $19.87 billion prior quarter holdings in the group (for more general information on these guru funds, please look at the end of the article).
The following are the auto group companies that these guru fund managers are most bullish about, and that are also trading at a discount to the peers in their group, and have outperformed relative to their peers YTD (see Table):
Delphi Automotive Plc (DLPH): DLPH is a manufacturer of vehicle components, powertrain, safety and thermal technology solutions for automotive and commercial vehicle markets worldwide. Guru funds together held $2.95 billion worth of DLPH stock at the end of Q4, equal to 29.0% of the outstanding shares, far exceeding their 2.9% weighting in the auto group. The top guru fund holders were famed hedge fund company Paulson & Co., with over $35 billion in assets under management ($1.60 billion), and hedge fund Oaktree Capital Management ($763 million).
DLPH reported its Q1 (March) quarter on Tuesday, reporting revenues in-line and beating analyst earnings estimates ($1.04 v/s 92c). The stock has been a strong performer since its IPO last November, currently trading near its highs and up about 45% YTD compared to the 20% gain for the average auto stock. DLPH shares trade at a reasonable 7-8 forward P/E and 6.0 P/B compared to averages of 8.7 and 2.7 for its peers in the auto/truck OEM group, while earnings are projected to grow at a strong 13.5% annual rate from $3.33 in 2011 to $4.29 in 2013.
TRW Automotive Holdings (TRW): TRW is a supplier of automotive systems, modules, and components for automotive OEMs and related aftermarkets, including integrated vehicle control and driver assist systems, braking systems, steering systems, suspension systems, occupant safety systems, electronics, engine components, fastening systems and aftermarket replacement parts and services. Guru funds together added a net $161 million in Q4 to their $104 million prior quarter position in the company, and taken together guru funds hold 4.6% of the outstanding shares. The top buyer was Chicago-based Harris Associates LP, manager of the Oakmark Funds ($223 million), also the top holder at $225 million.
TRW is scheduled to release its next Q1 (March) quarter next week, on Tuesday. Earlier, in February, it reported a strong Q4, with revenues in-line and earnings beating analyst estimates by a huge margin ($1.84 v/s $1.51). The shares are up just under 15% since the report, and up almost 45% YTD v/s the 20% gain for the average auto stock. Its shares currently trade at 7 forward P/E and 1.9 P/B compared to averages of 8.7 and 2.7 for its peers in the auto/truck OEM group.
The following are some additional auto group companies that guru fund managers accumulated in Q4 (see Table):
- General Motors Company (GM), a global automaker that produces cars and trucks and sells them under the brand names Chevrolet, Cadillac, GMC, Buick and other brands worldwide, in which guru funds together added a net $85 million in Q4 to their $592 million prior quarter position in the company;
- Indian company Tata Motors Ltd. ADS (TTM) that makes passenger cars, commercial vehicles, utility vehicles and accessories, in which guru funds together added a net $27 million in Q4 to their $17 million prior quarter position in the company;
- High-performance, low-emission engines and fuel injection systems manufacturer Westport Innovations Inc. (WPRT), in which guru funds together added a net $16 million in Q4 to their $108 million prior quarter position in the company;
- Wabash National Corp. (WNC), a provider of standard and customized truck trailers and related transportation equipment, in which guru funds together added a net $9 million in Q4 to their $7 million prior quarter position in the company;
- Tesla Motors Inc. (TSLA), a manufacturer of high-performance fully electric vehicles and advanced electric vehicle power-train components, in which guru funds together added a net $8 million in Q4 to their $39 million prior quarter position in the company; and
- Johnson Control Inc. (JCI), that manufactures automotive interior systems and batteries for OEMs and control systems for non-residential buildings, in which guru funds together added a net $5 million in Q4 to their $54 million prior quarter position in the company.
Besides these, guru fund managers based on their Q4 trading activity indicated that they are bearish on the following auto group companies (see Table):
- Autozone Inc. (AZO), that is a leading operator of over 4,800 retail auto parts stores nationwide and in Mexico and Puerto Rico, offering automotive parts and accessories that focus primarily on do-it-yourself (DIY) customers, in which guru funds together cut a net $2.24 billion in Q4 from their $3.64 billion prior quarter position;
- Goodyear Tire & Rubber (GT), one of the world's largest tire companies and a very well-known worldwide brand as its tires are marketed in almost every country, it manufactures tires, engineered rubber products and rubber-related chemicals for transportation and industrial markets, in which guru funds together cut a net $85 million in Q4 from their $163 million prior quarter position;
- Automotive parts store chain operator O'Reilly Automotive Inc. (ORLY), in which guru funds together cut a net $39 million in Q4 from their $660 million prior quarter position; and
- Ford Motor (F), that manufactures automobiles under the Ford and Lincoln nameplates, offers a wide range of after-sales vehicle services and products, and also offers vehicle financing, leasing and insurance services, in which guru funds together cut a net $23 million in Q4 from their $210 million prior quarter position.
General Methodology and Background Information: The latest available institutional 13-F filings of over 85+ legendary or guru hedge fund and mutual fund managers, such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, were analyzed to determine their capital allocation from among different industry groupings, and to determine their favorite picks and pans in each group. The hedge fund and mutual fund managers included in this select group include only high profile names who by virtue of their long-term market-beating returns have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 85-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles that can be accessed from our author page
These legendary or guru fund managers number less than one percent of all funds and yet they control over ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds best picks.
This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.
Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.