Tenneco: The Benefits of Buying When Nobody's Looking

As the nation digests Washington’s disgusting partisan failure today, we remain focused solely on the financial industry. With good reason, companies like Wachovia (NYSE:WB), JPMorgan (NYSE:JPM), and Morgan Stanley (NYSE:MS) are getting all the attention.

Meanwhile, thanks to a less controversial multi-billion-dollar government bailout that has already made its way through Congress, another very important arm of the American economy will survive to see another day. It is creating some great profit opportunities, while teaching us about an important investment strategy: Buy when nobody is looking.

Until it received word of a bailout this weekend, General Motors (NYSE:GM) was unsure whether it would have the cash flow necessary to keeps its factories churning. With the credit markets seized, and the company’s less-than-stellar credit rating, investors worried all this talk of high-tech, highly efficient cars was a waste of time.

After all, if GM cannot pay its bills next month, or next week for that matter, there is no way the company will survive long enough to benefit from any radical product lineup change.

At least they got something done

Thanks to the action of our elected officials, we no longer have to worry. The nation’s automakers get a $25-billion loan from the federal government. It is expected to give the industry enough cash flow to survive until at least 2010, when market conditions are widely expected to be much better.

The news has allowed GM and Ford (NYSE:F) to shake off much of today’s Wall Street beating. But these are not the companies you should be looking at.

Remember, if GM, Ford, Chrysler, or even Toyota run into trouble, all of their suppliers will be dramatically impacted. Companies like Borg Warner (NYSE:BWA) and Johnson Controls (NYSE:JCI) are the companies truly celebrating today. With a lot less financial freedom than the billion-dollar giants they supply, this loan truly is a lifeline designed to keep their heads above the water.

With so much attention given to the $700-billion financial-industry bailout, it is no surprise Wall Street has barely even reacted to the auto-industry news. That is good news for investors like you. Dozens of companies should be soaring today, yet their share prices have been trashed thanks to the inaction of your elected officials

One of them is Tenneco (NYSE:TEN), an OEM supplier of emissions equipment. As Detroit works towards better fuel efficiency and lower emissions, Tenneco will soar in value. Its high-demand products are used by nearly all North American-based manufacturers plus Toyota (NYSE:TM), which recently became a major customer.

Since early summer, Tenneco’s share price has plummeted. In May, shares were trading for about $27. Today, you can get them for under $11. With earnings almost certain to rise over the next few years, it is a good deal.

But I am not writing to recommend you buy shares of Tenneco. I am writing to reinforce the benefits of buying when nobody is looking.

Right now, Wall Street has just one thing on its mind, short-term liquidity. All it cares about is whether the capital the nation needs to stay in business is available. (Thanks to today’s no-vote on the bailout, that is now a very big question).

But with Wall Street thinking about tomorrow and next week, nobody is running valuation equations that look out two or three years. You should be. That is where the big moneymaking opportunities lie.

Companies like Tenneco stand to see huge share price gains as this mess turns around and the nation’s industries gain momentum.

Wall Street is hurting. Valuations are lower across the board. Take the opportunity to buy shares of the intermediate gainers. In 24 short months, you will be very glad you did.

Disclosure: none

Comments

[Stone Fox C...:]

Nice article. The market pretty much ignored the real bailout package.

2008 Sep 29 07:15 PM

[Gordon Gekko:]

The stock market as a whole is still extremely overvalued. This not your run of the mill Great Depression - yes "Great" depression. When this ends, and you can thank Alan Greenspan for it, US will no longer be the country it once was. It's GDP will shrink to be less than that of China and so will its stock market.

2008 Sep 30 07:10 AM

[BlueOkie:]

Never did I think a $25B loan by congress would go so unnoticed. I just added to my BWA position.

2008 Sep 30 08:29 AM

[golfereveryday:]

My my how things can change in a month. TEN is in big trouble - Bank Covenants, Cash Flow, Excess Capacity, New CEO, Lack of New Technology, etc. Is a BUY at $3.00 as TEN will surely show some benefit when the market turns around. Clearly a short term play - don't bet on this dog long term!

2008 Oct 10 12:35 PM

[BWA:]

Where do you figure BorgWarner needs the auto companies such as, GM, Ford, and Chrysler, which make up only 15% of the companies business to "keep their heads above the water"

By the way Ford, GM, and Chrysler have already ran into trouble.

You should not be an analyst. Put your articles on the Cartoon page.

2008 Oct 13 10:59 AM

[User 370660:]

Dude.. check its price now. its worse than a penny stock.. think before u talk. dont mislead the common man

Mar 05 07:11 PM