Will These Stocks Keep Your Portfolio Purring Along?
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Auto parts aren't sexy. No matter how great a car looks and runs, or how much it appeals to the opposite sex, the parts inside the car won't excite most people. However, the stocks of companies that produce those parts may supercharge your returns, and tangible results get respect. Will these stocks make your portfolio hum along like a well-oiled machine, or will we likely be finding them DOA on the side of the road? Let's pop the hood and check 'em out.
Concentration Pays Off
Tenneco (NYSE: TEN) is an auto parts manufacturer that has roots going back to the 1940s. Having once been part of a major conglomerate, it split off in 1999. I really like that Tenneco operates in 24 different countries on six continents because I love international exposure for its durability -- there may be hard times in Singapore or Michigan, but production will still go on in Belgium, India, Sydney and many other places. I also believe that currency differences account in no small part for the fact that Tenneco's profit margins are only 3.7%. As an auto part production company, I think they've balanced their ability to produce well against their sales, as evidenced by their operations in areas where automobiles are becoming increasingly available to common people. This is why I believe Tenneco's price/book is a rather high 7.2, and I recommend looking at this company despite its lack of a dividend.
Another company that works a particular angle very effectively is Gentex (NASDAQ: GNTX). This company draws the vast majority of its net sales from auto-dimming mirrors, and every major automaker on earth uses them. I like that Gentex is working to diversify itself and the use of its proprietary technologies into the highly profitable aerospace industry and making 15.4% profit margins. I also like that despite a reasonable moat of technology that other manufacturers don't have, Gentex is trading at a respectable 13.98 P/E and a reasonably small 2.1 price/book ratio. I even like the 3.2% dividend the company pays.
Playing Every Side
I've heard it said that the only individual who benefits from war is the arms merchant. In the case of Dana Holding Corporation (NYSE: DAN), it doesn't especially matter who the biggest auto maker in the world is; there's a good chance this is one of its part suppliers. I'm ambivalent about this company because it has been in bankruptcy as recently as 2007, and the shareholders got nothing out of the deal. However, unlike a lot of companies, Dana's recovered a fair profit margin (3.7%) and has been able to pay a dividend recently. I also don't particularly like the fact that Dana's business model is essentially a commodity. It's a rare person who can identify a Dana axle from anybody else's. So I'm giving this company a reluctant pass until I can see how it operates for a few more years.
Tucked Profitably Away
Wabco Holdings (NYSE: WBC) is a company that serves a tight niche market in commercial vehicles, with concentrations in vehicle control and other crucial systems. I like that Europe is the major arena where Wabco operates, as this makes it less well known to American investors. But if my stock screener is right Wabco is a perfectly viable company with a 12.2% profit margin, a strong and well established niche that they're working to grow, and a fairly low-cost 12.24 P/E ratio. I have a feeling that this would be a much more high-priced company if more American investors knew about it. I think Wabco deserves a more in-depth look.
Lots of Opportunities
Auto parts are pretty boring, but boredom is usually a good way to make a profit over the long term. While I can't guarantee any of these companies will keep doing well, I can see that most of them have survived plenty of bad times and are thriving in spite of the woes the auto industry is going through. They could become valuable, well, parts of your portfolio.
pongun has no positions in the stocks mentioned above. The Motley Fool owns shares of Gentex. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!