The average automobile industry stock, as represented by the Global X Auto ETF (VROM), is about flat YTD and down about 20% from the year highs set earlier in March. However, within the group, there is a dichotomy, as most auto supplier stocks are still performing quite well, whereas most auto manufacturers, particularly General Motors (GM), are trading back near their lows. The auto industry in the U.S., and indeed globally, is expected to come out strong as we grow out of the recession; however, Europe may continue to be a drag to their bottom line, particularly for auto manufacturing companies.
The industry is complex to analyze, and often a battleground, with its domination by less than a dozen manufacturers and global suppliers, with government intervention and sponsorship, environmental regulation and the impact of commodity energy prices. Add to that, the movement of production over time from Europe and North America to cheaper labor and growing end demand markets in Asia and North America, and you have a very dynamic and evolving industry (in contrast, perhaps, to perception).
In this article, we analyze the investments of 25 of the world's largest or mega fund managers in the auto industry. These mega fund managers together account for almost 40% of the assets invested in the U.S. equity markets and manage between $100 billion and over a trillion dollars each. Also, together, they are bullish on the group, adding a net $591 million in Q1 to their $103.75 billion prior quarter position in the group.
The investing activities of these mega fund managers in the group in the prior quarter can be found here. The following are the auto industry companies that these mega fund managers are most bullish about (see Table):
Delphi Automotive Plc (DLPH): DLPH is a manufacturer of vehicle components, power-train, safety and thermal technology solutions for automotive and commercial vehicle markets worldwide. Mega funds together added a net 15.71 million shares (or $428 million) in Q1 to their 19.71 million share prior quarter position in the company, and taken together, mega funds held $966 million or 10.8% of the outstanding shares.
The top buyers were Boston-based MFS Investment Management, with over $278 billion in assets under management, that purchased 9.39 million shares. Other major institutional buyers included mutual fund powerhouse Fidelity Investments (2.15 million shares), with $555 billion in 13-F assets, New York-based Bank of New York Mellon Corp. (1.88 million shares), with over $1.2 trillion in assets under management, and the world's largest and most prominent asset manager, BlackRock Inc. (1.59 million shares), with over $3.5 trillion in assets under management. Overall, institutional investors loaded up on DLPH, adding 22.9 million shares in Q1 to their 236.2 million share prior quarter position.
In its latest Q1 (March), DLPH reported in-line revenues and beat analyst earnings estimates ($1.04 v/s 92c). The stock has performed well since its IPO last November, up about 25% from its offering price. The shares are currently off about 15% from the highs set earlier in the year, mostly a correction of the sharp rally earlier in the year that carried the stock up 65% in three months, but also reflecting more accurately difficult conditions shaping up at its biggest customer, General Motors.
At its current price in the $27 range, shares appear to be attractively priced at 6-7 forward P/E and 4.1 P/B compared to averages of 10.1 and 5.9 for its peers in the auto/truck OEM group, while earnings are projected to continue growth at a strong 11.8% annual rate from $3.33 in 2011 to $4.16 in 2013. However, some of those projections could be at risk if the economic difficulties in Europe worsen, leading perhaps to a slowdown in China. Having said that, for those wishing to have some exposure to the auto group, DLPH is more attractively priced at least on a relative basis compared to its peers.
Other auto industry stocks that mega fund managers are bullish about include:
- Borg Warner Inc. (BWA), a leading manufacturer of highly engineered automotive systems and components primarily for power-train applications worldwide, in which mega funds together added a net 3.12 million shares to their 43.31 million share prior quarter position in the company;
- Genuine Parts Co. (GPC), a distributor of automotive replacement parts in the U.S., Canada, and Mexico, in which mega funds together added a net 3.25 million shares to their 51.28 million share prior quarter position in the company;
- Honeywell Intl Inc. (HON), a provider of automotive and aerospace products, security technologies, specialty materials and engine systems, in which mega funds together added a net 2.59 million shares to their 346.37 million share 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 mega funds together added a net 4.22 million shares to their 34.68 million share prior quarter position in the company;
- 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, in which mega funds together added a net 4.71 million shares to their 85.65 million share prior quarter position in the company; and
- General Motors Company, 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 mega funds together added a net 1.94 million shares to their 312.93 million share prior quarter position in the company.
The following are auto industry companies that mega funds are bearish about (see Table):
- Johnson Control Inc. (JCI), that manufactures automotive interior systems and batteries for OEMs and control systems for non-residential buildings, in which mega funds together cut a net 19.13 million shares from their 334.65 million share prior quarter position in the company;
- Paccar Inc. (PCAR), a designer, manufacturer, and distributor of light, medium, and heavy-duty trucks and related aftermarket parts primarily in the United States and Europe, in which mega funds together cut a net 7.20 million shares from their 125.39 million share prior quarter position in the company;
- Cummins Inc. (CMI), that manufactures diesel and natural gas engines, electric power generation systems and engine-related component products for OEMs worldwide, in which mega funds together cut a net 1.47 million shares from their 87.44 million share prior quarter position in the company; 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 mega funds together cut a net 12.42 million shares from their 1.02 billion share prior quarter position in the company.
Furthermore, the following are additional notable holdings of mega funds in the auto industry (see Table):
- Indian company Tata Motors Ltd. ADS (TTM) that makes passenger cars, commercial vehicles, utility vehicles and accessories, in which mega funds together hold 16.14 million or 3.0% of the outstanding shares; and
- automotive parts store chain operator O'Reilly Automotive Inc. (ORLY), in which mega funds together hold 48.41 million or 38.4% of the outstanding shares.
General Methodology and Background Information: The latest available institutional 13-F filings of the largest 25 mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than one percent of all funds and yet they control almost half of the U.S. equity discretionary fund assets. The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors 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.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.