5 Cheap Stocks for an Auto Industry Renaissance
In that first column, we looked at Ford Motor (F) as a good company with an unloved stock. Shares of Ford have fallen more than 35% since early 2011 on concerns that near-tem profit growth will be elusive.
It's true. Ford earned around $1.50 a share in 2011 and will likely do the same in 2012. And analysts see profits rising only 15% in 2013 to around $1.70 to $1.75 a share, in large part because the troubles in Europe may create a profit drag.
Yet the stars are aligning for a profit bulge when the current headwinds abate, and Ford may be poised to earn $2.50 a share by the middle of the decade. The current $12 share price seemingly ignores that possibility. More to the point, even at current profit levels before the profit surge begins, Ford is generating stunning amounts of cash, fattening up its balance sheet and setting the stage for a new and rising dividend along with share buybacks.
But it's not just Ford that has reason to exhale these days. So many other auto makers and their parts suppliers are also getting healthier by the day, even if their flagging share prices say otherwise. How unloved in this group? Consider that GM(GM) has $19 billion in net cash -- accounting for fully half of its market value. The company is so flush that it's unlikely to ever again see the financial implosion that took place in 2008 and 2009. Yet investors figure this $155 billion (in 2012 sales) business deserves an enterprise value of just $19 billion.
The fact that GM and Ford trade for 5.5 times, and 7 times projected 2013 profits, respectively, tells you how cheap they are.
TRW(TRW) is the rare auto parts supplier that managed to keep making money even when the industry tanked a few years ago. Credit goes to a management team that has focused on cutting-edge products that will always be in demand. Many know that TRW virtually pioneered the airbag industry, cementing its lead into other safety technologies such as collision avoidance systems.