Auto Industry

  • 02 Oct
    International diversification could be a good thing with BRDCY

    International diversification could be a good thing with BRDCY

    One of the principles a lot of investment advisors and money managers point to when they talk about risk management is diversification. Diversification means spreading your investing dollars across multiple different opportunities. The general idea is that the greater your diversification, the less exposed you are to risk in any one stock. More →

  • 28 Sep
    Which auto stock is a better investment right now: FCAU, GM or F?

    Which auto stock is a better investment right now: FCAU, GM or F?

    Earlier this week, I wrote about recent opinions I’ve seen that suggest that the stock market’s long, extended bullish run still has plenty of life left to keep going. One of the most compelling arguments supporting that opinion is the fact that, after the market’s big correction in the early part of this year, most of the market’s recovery has been led by beaten-down stocks in previously under-appreciated and oversold industries. That suggests the bullish momentum that has pushed the market higher since April when it found a corrective bottom is driven by an emphasis on value, which does offer some very compelling food for thought. Value-driven market rotation usually happens at the beginning of a bull market, not in the latter stages of one, so I think there could more than a little truth behind the notion.

    Let’s go ahead assume for the time being that this idea is correct; it begs the next question, which is naturally, where am I going to find the best values in the market right now? It’s one thing to tell you to look for beaten-down stocks in depressed industries; it’s quite another to actually recognize what some of those areas of the market are right now.



    As I previously mentioned, the auto industry is an area of the market that has really come under a lot of pressure. While the broad market has seen a nice rally since April of this year, the Big Three automakers have all seen significant drops in price. Fiat Chrysler Automotive (FCAU), Ford Motor Company (F) and General Motors Company (GM) are all down around 25% since reversing lower from their respective high points in April and June. Yes, a not-insignificant part of that drop has been driven by trade-related tensions with all four of America’s largest trading partners, and for as long as those tensions persist, there remains an element of risk that could keep pushing these stocks lower. Even so, the fact they are all down in bear market territory should at least have any sensible value-oriented investor sit up, take notice, and consider whether there is an opportunity worth thinking about.

    What follows is a comparison of all of the Big Three U.S. automakers, side by side, to determine which of the three actually poses the best value-based argument right now. Does that mean that you should think about taking a position in the winner right now? That is for you to decide.



    Earnings/Sales Growth

    • Ford: Over the last twelve months, earnings decreased by almost 52% while sales were mostly flat, declining by only about 2%. The company operates with a narrow margin profile that saw Net Income at 4.2% of Revenues over the last twelve months, and decreased to only about 2.7% in the last quarter.
    • GM: The twelve-month pattern for GM shows earnings decreasing only a little over 4%, and sales mostly flat, declining about .6%. GM’s margin profile over the last twelve months showed Net Income was a negative 3.2%, but improved in the last quarter to positive 6.5%.
    • Fiat Chrysler: Earnings over the last twelve months declined 2.63% for FCAU versus sales growth of 12.62%. The company’s margin profile showed Net Income as 3.1% of Revenues in the last twelve months, and declining to 2.5% for the most recent quarter.

    Winner: FCAU, on the basis of superior earnings and sales results in the last year versus F or GM.

    Free Cash Flow

    • Ford: F’s free cash flow is quite healthy, at more than $9.1 billion over the last twelve months. That translates to a Free Cash Flow Yield of 23.5%, which is extremely attractive.
    • GM: GM has operated with negative Free Cash Flow since the last quarter of 2016, and as of the last quarter this number was a little more than -$12.3 billion dollars.
    • Fiat Chrysler: FCAU’s Free Cash Flow over the last twelve months is healthy at a little more than $4.9 billion. That translates to a Free Cash Flow Yield of 13.8%

    Winner: F, with the highest total dollar amount in Free Cash Flow over the twelve months along with the most attractive Free Cash Flow Yield.



    Debt to Equity

    • Ford: F has a debt/equity ratio of 2.8. High debt/equity ratios aren’t unusual for automotive stocks, however it should be noted that F’s debt/equity is the highest among the Big Three auto companies. The company’s balance sheet demonstrates their operating profits are sufficient to service their debt, with healthy liquidity to make up any potential difference if that changes.
    • GM: GM’s debt/equity ratio is 1.81, which is also pretty high, but below that for F. The difference, however is that while GM’s operating profits should be adequate to service their debt, they may not have enough liquidity to make up any potential operating shortfall.
    • Fiat Chrysler: FCAU’s debt/equity ratio is the lowest of the group, at .46. That alone puts them well ahead of the other two in this category; but it is also worth noting that the company’s cash and liquid assets are more than 34% higher than their long-term debt. That gives them the best actual financial base to operate from out of any of the Big Three.

    Winner: FCAU. Not even close.

    Dividend

    • Ford: F pays an annual dividend of $.60 per share, which translates to a very impressive yield of more than 6% per year.
    • GM: GM’s dividend is $1.52 per year, translating to an annual yield of 4.51%
    • Fiat Chrysler: FCAU does not pay a dividend.

    Winner: F. Dividends are the low-hanging fruit that every value-oriented investor should look out for.



    Value Analysis

    • Ford: F’s Price/Book value is $9.18 per share and translates to a Price/Book ratio of 1.07 at the stock’s current price. Their historical average Price/Book ratio is 2.12, which suggests the stock is trading right now at a discount of more than 97%. The stock is also trading about 60% below its historical Price/Cash Flow ratio.
    • GM: GM’s Price/Book value is $27.38 and translates to a Price/Book ratio of 1.23 at the stock’s current price. Their historical average Price/Book ratio is 1.9, which suggests the stock is trading right now at a discount of 54%. The stock is also trading more than 129% below its historical Price/Cash Flow ratio.
    • Fiat Chrysler: FCAU’s Price/Book value is $13.87 and translates to a Price/Book ratio of 1.29 at the stock’s current price. Their historical Price/Book ratio is 1.32, suggesting the stock is trading at a discount of 2.3%. The stock is also trading 55% above its historical average Price/Cash Flow ratio, suggesting the stock remains significantly overvalued, even at its current price.

    Winner: F, edging out GM for best overall value proposition, but not by a wide margin.

    The net winner? While FCAU has the best overall fundamental profile, it offers the least upside potential, with a significant level of downside risk. That puts F squarely in the winner’s circle for the best overall opportunity among the Big Three automakers under current market conditions. On the other hand, the greatest overall risk remains with GM, who despite the upside offered by its value measurements, has some big fundamental question marks that make the value proposition hard to justify.


  • 24 Sep
    Ford Motor Company (F) has an interesting value argument; is it worth the risk?

    Ford Motor Company (F) has an interesting value argument; is it worth the risk?

    Nothing has kept the market more on edge this year than trade tensions and the threat of a trade war between the U.S. and its trade partners. Things only seem to get more intense this week, as the Trump administration is set to impose new 10% tariffs on $200 billion of Chinese goods on Monday. More →

  • 17 Sep
    Trade fears mean BWA is STILL a screaming buy

    Trade fears mean BWA is STILL a screaming buy

    The Trump administration’s aggressive trade policies with its partners have had global markets on edge for months. And even as headway is being made with Mexico, and pressure is intensifying on Canada to sign the agreement to redo NAFTA by the end of the month, and talks continue with the European Union, concerns and worries persist in particular over how quickly any kind of deal can or will be made with China, America’s largest trade partner. Those concerns have kept pressure on global markets, which also means that stocks in industries that are the most directly impacted by tariffs have experienced the greatest volatility. Stocks in the auto industry, or related to it, for example are among the ones that have seen the biggest swings in price.

    BorgWarner Inc. (BWA) is a good example. While the stock is down about 13.3% year-to-date, it’s actually down a little over 28% since reaching an all-time high in mid-January. I first wrote about this stock a month ago, with the stock at practically the same price it is at right now. That is one of the things that makes the stock interesting right now; while trade war fears have persisted since early spring, the stock has stabilized since July in the mid-$40 range. That has opened an interesting technical opportunity on a fundamentally very solid stock, since the longer the stabilization range holds, the more likely it is to break out of it and rally back to the upside.

    BWA’s fundamental profile is better than many of its brethren in the Auto Components industry, with good cash flow, conservative debt levels and operating margins that have actually improved over the last year despite increasing price pressures. Those pressures include exposure to foreign trade risk, but that is an element that up to this point has yet to be actually be felt. It is true that the stock isn’t immune to the potential long-term effects of trade conflict, but it is also true that most of those effects for now are inferred. If Canada yields as many seem to expect to pressure from the U.S. and from Mexico to join their agreement, look for the market to respond positively, with momentum swinging in favor of the Trump administration versus the E.U. and China. Either way, at its current prices, BWA offers an incredibly attractive value proposition right now.



    Fundamental and Value Profile

    BorgWarner Inc. is engaged in providing technology solutions for combustion, hybrid and electric vehicles. The Company’s segments include Engine and Drivetrain. The Engine segment’s products include turbochargers, timing devices and chains, emissions systems and thermal systems. The Engine segment develops and manufactures products for gasoline and diesel engines, and alternative powertrains. The Drivetrain segment’s products include transmission components and systems, all-wheel drive (AWD) torque transfer systems and rotating electrical devices. The Company’s products are manufactured and sold across the world, primarily to original equipment manufacturers (OEMs) of light vehicles (passenger cars, sport-utility vehicles (SUVs), vans and light trucks). The Company’s products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications. BWA’s current market cap is $9.4 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings increased by almost 23% while revenues posted an increase of nearly 14%. In the last quarter, the increase in earnings was more modest at a little over 7%, while sales declined by 3.24%. The company operates with a narrow margin profile, with Net Income running at only about 5% of Revenues for the last twelve months; however this measurement nearly doubled to 10% in the last quarter.
    • Free Cash Flow: BWA’s free cash flow is healthy, at a more than $515 million. While the number declined since the beginning of the year, it has increased since late 2015 from only about $150 million.
    • Debt to Equity: BWA has a debt/equity ratio of .52. This number reflects the company’s manageable debt levels. The company’s balance sheet indicates operating profits are sufficient to service the debt they have.
    • Dividend: BWA pays an annual dividend of $.68 per share, which translates to an annual yield of about 1.5% at the stock’s current price.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for BWA is $19.41 per share and translates to a Price/Book ratio of 2.31 at the stock’s current price. Their historical average Price/Book ratio is 2.96. That suggests the stock is trading right now at a discount of a little over 28%, and that puts the stock’s long-term target above $57 per share. Additionally, the stock is currently trading more than 78% below its historical Price/Cash Flow ratio. The stock’s all-time high was reached in mid-January of this year at around $58, which means projecting a 75% increase in the stock may be speculative, especially under current market conditions; however it also suggests there is a good argument for the stock to retest its highs, especially if the broader market can maintain its long-term upward bullish strength.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: The red diagonal line measures the length of the stock’s downward trend from mid-April to its bottom in July of this year; it also informs the Fibonacci trend retracement lines shown on the right side of the chart. The stock found major support, and the end of its downward trend around $42 in early July, and has used that price area as a pivot low support point on multiple occasions since then. The top end of its range since then is around $46 per share, and the stock would need to break above that level to stage a legitimate trend reversal, with incremental resistance points around $48 and $50.
    • Near-term Keys: If you’re a short-term trader looking for a good opportunity with this stock, a good signal to buy the stock or to work with call options would come if the stock breaks above $46 per share. The stock’s current support at around $42 per share also marks an important signal point for a potential bearish set up, as a break below that point would be a good time to consider shorting the stock or working with put options. If you’re willing to work with a long-term time horizon, and you don’t mind the potential volatility that could come with continued market uncertainty and trade concerns, its current price also offers an excellent starting point for a long-term, value-based opportunity.


  • 06 Sep
    U.S. – Canada trade fears have created a great value opportunity for this Detroit supplier

    U.S. – Canada trade fears have created a great value opportunity for this Detroit supplier

    Last week the Trump administration announced it had made a deal with Mexico to rework the two countries’ two-and-a-half decades long trade agreement. There is a third party in that agreement, of course, since NAFTA originally included the U.S., Mexico and Canada. The move has clearly put more pressure on the Canadian government to compromise, although to this point it doesn’t appear much more progress on that front has been made.

    Tensions between the U.S. and Canada have revolved primarily around tariffs on autos, although other goods have been involved as well. Concern around trade issues between the two countries have weighed on Canadian stocks that rely heavily on partnerships with U.S. business. Magna International (MGA) is a good example; since late May, when the stock hit an all-time high at around $67.50, the stock has lost about 25% of its value. Trade issues between the U.S. and Canada aren’t over, and that means that momentum for stocks like MGA could continue to be mostly bearish; at the very least, investors who are interested in this stock should expect to see plenty of volatility in the weeks and months ahead as the market decides what direction the stock should follow.



    Over the last month alone, the stock has dropped about 10%, after the company missed estimates in its latest earnings report. That pushed the stock into an even more decidedly bearish near-term profile, as the stock crossed below its 200-day moving average line. This moving average acts as an important visual indicator of a stock’s long-term trend for most technicians, and so a move below that line is usually taken as a clear sign the stock’s current trend is going to keep moving down. Over the last couple of weeks, however, the stock has shown some interesting resilience, finding support around $52 per share. Despite the market’s reaction to their latest report, the truth is that the earnings picture is actually pretty good for MGA, and the overall fundamentals for this company remain quite good. 

    The company’s earnings report did include tariffs as a risk element in the third and fourth quarters of the year, and that is probably another big reason the stock has continued to drop. I think it’s worth pointing out, however that the U.S. – Mexico announcement took the market by surprise and wasn’t expected; to me that means that for all the posturing that has gone on (and continues) between the countries involved, it’s really all about what happens behind closed doors. I think Canada it’s ultimately going to be in the best interest of both the U.S. and Canada to bring all three American trading partners back together again, and so most of the bearish sentiment around stocks like MGA is really just creating good opportunities to pick up some great companies at very nice valuation levels.



    Fundamental and Value Profile

    Magna International Inc. (Magna) is a global automotive supplier. The Company’s segments are North America, Europe, Asia, Rest of World, and Corporate and Other. The Company’s product capabilities include producing body, chassis, exterior, seating, powertrain, electronic, active driver assistance, vision, closure, and roof systems and modules, as well as vehicle engineering and contract manufacturing. The Company has over 320 manufacturing operations and approximately 100 product development, engineering and sales centers in over 30 countries. It provides a range of body, chassis and engineering solutions to its original equipment manufacturer (OEM) customers. It has capabilities in powertrain design, development, testing and manufacturing. It offers bumper fascia systems, exterior trim and modular systems. It offers exterior and interior mirror systems. It offers sealing, trim, engineered glass and module systems. It offers softtops, retractable hardtops, modular tops and hardtops. MGA has a current market cap of about $18.2 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings grew almost 13%, while Revenues grew a little over 6%. Growing earnings faster than sales is hard to do, and generally isn’t sustainable in the long term; however it is also a positive mark of management’s ability to maximize a company’s business operations. In the last quarter, the picture turned negative, with earnings decreasing a little over 9% and sales declining almost 5%. That could be a first, early indication of impact from tariffs on costs, both for MGA as well as for its customers.
    • Free Cash Flow: MGA’s free cash flow is healthy, at a little more than $1.9 billion. This number has been somewhat cyclic from one quarter to the next, but has shown a general, upward stair-step pattern of growth going back to the last quarter of 2016.
    • Dividend: MGA pays an annual dividend of $1.32 per share, which translate to an annual yield of 2.48% at the stock’s current price. 
    • Return on Equity/Return on Assets: These numbers are very strong. ROE is 19.72 and ROA is 8.94.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods that I like uses the stock’s Book Value, which for MGA is $33.97 and translates to a Price/Book ratio of 1.56 at the stock’s current price. The stock’s historical average Price/Book ratio is 1.94, suggesting the stock is nicely undervalued by about 24%; at par with its average, the stock should be trading at about $66 per share. Working with $66 as a long-term target is even more justified by looking at the stock Price/Cash Flow ratio, which is currently 30% below its historical average. That would put the stock in range to test its all-time highs and in position to start making new ones.



    Technical Profile

    Here’s a look at the stock’s latest technical chart.

     

    • Current Price Action/Trends and Pivots: After following a nice upward trend until May, the stock peaked at around $67.50 before dropping back its current level. The gap you see in early August came in conjunction with the company’s last earnings report, and in fact that gap is providing resistance right now against any further movement upward for the stock. I already alluded to its 200-day moving average (not shown); the stock is about $5 per share below that line, and would need to break above it to stage any kind of new upward trend. A drop below $52 per share would mark a break below the stock’s long-term support level and could provide bearish momentum for a continued decline to as low as $45 in fairly short order.
    • Near-term Keys: The stock’s most current resistance is at around $56, from a pivot high just about a week ago; if the stock can break that level, there could be a good short-term opportunity to buy the stock or work with call options. If you like the stock’s value potential right now, and don’t mind dealing with what I think will be quite a bit of volatility for the time being, this could be a great time to go ahead and take a position with a long-term time frame in mind. If you prefer to work with the bearish side of the market right now, wait to see if the stock drops below $52; if it does, consider shorting the stock or working with put options.


  • 04 May
    Doing This One Thing Can Help You Save $1 Million

    Doing This One Thing Can Help You Save $1 Million

    One of the things that strongly impact a life but is rarely discussed is buying a car.

    We are bombarded with car commercials, and it seems so important to regularly buy a new car. So, as I think personal finance is a step above and more important than actual stock picking, today I’ll share with you my strategy regarding cars which has been extremely helpful during my life and has enabled me to do so many wonderful things.

    Let me show you how anyone can save a million by buying 5-year old cars instead of new cars. 




    More →

  • 21 Mar
    This Industry Is About To Be Disrupted In A HUGE Way

    This Industry Is About To Be Disrupted In A HUGE Way

    • There are three trends of huge importance in the car industry: electric drive, autonomous drive, and transport as a service.
    • It’s important how this could impact margins and sales.
    • A trend where everything becomes cheaper isn’t a trend you want to be invested in with a few exceptions.



    Introduction

    This past weekend, I discussed Ford from a cyclical sector perspective but there is so much going on in the automotive sector making it a much different environment from what it has been in the last 100 years.

    Today, we’ll discuss what’s changing in the automotive industry and how that will impact producers over the next 10 years. The secular trends I discuss in this video are the shift from internal combustion engines to electric-powered, the shift from active-drive to autonomous, and the shift from user-owned to drive-for-hire services, think of Uber, Lyft, Didi, etc. More →

  • 17 Mar
    Ford Is Cheap, But Should You Buy It Now?

    Ford Is Cheap, But Should You Buy It Now?

    • Today, we’ll discuss what’s most important when analyzing a company like Ford: fundamentals, the economy, sales, intrinsic values, cars, and the stock price.
    • When investing in Ford, you have to think about what the stock price will be when the earnings turn negative. They always do.
    • I’ll show you 3 models that will explain the current price for Ford.



    Why Is Ford So Cheap?

    Many see Ford (NYSE: F) with a price to earnings ratio of just 5.6 and a dividend yield of 5.66% as an extreme bargain. That might be true at first glance, but those who think so haven’t seen economic cycles. More →

  • 22 Nov
    Here’s Why You Need To Invest In The EV Trend

    Here’s Why You Need To Invest In The EV Trend

    • The EV trend is here—that’s a certainty—but the question is, how big will it be?
    • Another important question is how fast will the disruption happen?
    • It’s interesting that the more real business strength an EV manufacturer has, the cheaper it is.



    Introduction

    We all know one thing, electric vehicles (EV) will be the future.

    Many countries don’t have oil and will do their best to switch to electric vehicles with the goal of lowering pollution which is a huge issue, especially in China. More →

    By Sven Carlin Auto Industry Investiv Daily
  • 05 Oct
    The Electric Vehicle Trend Will Be Explosive – Here’s How To Profit On It

    The Electric Vehicle Trend Will Be Explosive – Here’s How To Profit On It



    • The latest news surrounding the electric vehicle market is extremely positive.
    • However, not every related investment will do well. We’ll discuss car manufacturers, graphite, cobalt, nickel, copper, and lithium.
    • There’s one way to profit from the growing trend that carries little risk, is already profitable, and definitely offers high upside in the next decade.

    Introduction

    We all know transportation will be electric in the future. However, this doesn’t mean that every investment in the sector is a smart investment.

    A great example of how investments in hot trends can work out is Amazon (NASDAQ: AMZN), and this example is the best-case scenario out there. More →

1 2