Purchase These Four Automotive-exposed Stocks
Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The auto industry has just recorded its highest monthly sales totals in five years, a sign that the downturn that was spurred by skyrocketing oil prices is far behind us. If the upturn continues, it could well have a reverberating effect on the entire economy, particularly on numerous suppliers and complementary product makers. Here are a few such examples, including some that are not readily apparent.
Plantronics (NYSE: PLT)
This producer of cordless headsets for the office and contact center market is also situated in the mobile sector with Bluetooth-enabled products built directly into vehicles. Sales of its mobile offerings had been declining while the company focused on a unified communications strategy, but have bounced back in recent quarters. An ongoing upturn in new auto sales could assist PLT’s revenues as mobile headsets gain further acceptance for use while driving. The company will likely aim to regain market share in the business while it also targets margin expansion through the outsourcing of manufacturing.
Plantronics shares perform best when employment figures are increasing, due to the cyclicality of its office unit. Therefore, should that metric remain on a slow rebound, while PLT benefits from its unified communications and mobile initiatives, it could well be poised for a good year again in 2013 (fiscal year ends March, 2014). The shares are a worthwhile investment at this time.
Genuine Parts Company (NYSE: GPC)
The operator of NAPA distribution centers acquired Quaker City Motor Parts Co. in May, supporting the top line. Plus, cost reductions are allowing for wider margins. In addition to auto, GPC operates a growing Industrial Products Group serving a wide range of industries. A pick up in industrial production would allow this segment to persist along a growth path. Management sees opportunities in the renewable energy market as potential drivers of incremental industrial business; this is in addition to its core replacement parts business.
GPC shares are best suited for a total-return portfolio, in light of the 3% dividend yield but also its potential for capital appreciation. The company invests more aggressively in its asset base than the average auto-parts supplier, likely a reason for its much stronger rate of share earnings advances than its industry peers over the past several years.
Harman International (NYSE: HAR)
Harman’s primary unit produces multimedia systems installed in luxury vehicles. The company is expanding into mid-priced and international markets. A recent report regarding sales strength at BMW is encouraging. Moreover, Harman is routinely entering new contracts with automakers. About 74% of its revenues are derived from auto manufacturers, much of this being factory-installed items. The risk here is that clients will transition to dual-sourcing arrangements.
HAR stock trades at a subdued P/E ratio, maybe a reflection of its volatility. Earnings are susceptible to customer exits and the company’s long-term growth plan, entailing a major extension into China and other emerging markets, is unsubstantiated. Nevertheless, I recommend you take a chance that management will make the right moves over the 3- to 5-year stretch.
Kimball International (NASDAQ: KBALB)
I have raised the electronics manufacturing services (EMS) sector as a possible diamond in the rough in a previous report. Kimball is apt to pique peoples’ interest, as it mentions the medical and headlined automotive segments as its two largest customer contingencies. Those are two of the less-penetrated industries for outsourcers. Furthermore, KBALB owns a furniture segment serving office and hospitality customers that may well be ignited by a commercial construction upturn.
A solid start to fiscal 2013 (ends in June) has sent the stock higher. Its current price is indicative of the favorable prospects for EMS services in its core end markets, meaning some expected profit gains are already included. More upside seems to be in the cards, though.
A range of automotive-related industries are represented in this review. Given positive movements in the auto industry’s bottom line, the inclusion of all of the equities in one’s portfolio should be a better-than-average source of appreciation and income. This is because, with the exception of Harman (trading at a reduced valuation), each has a presence in other markets that may well be on tap for improved results.
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