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2 Stocks That Benefit from the Success of Top-Selling Automakers
Posted by: EmmanuelM (IP Logged)
Date: September 16, 2013 01:55PM
In today's market where demand for new vehicles is on the rise, not only will the top car brands enjoy the sweet ride up, but these suppliers will also benefit greatly from the rising global demand. This is reflected by the outstanding share performances of these companies that saw steeper jump for this year, making them quite attractive for investing with greater potential for gains.
Auto Metal Structural Components Supplier
In terms of share price appreciation, Tower International (TOWR) outperformed its peers by posting a whopping 137.38% year-to-date growth. Its steep jump was driven by strong financials and rising demand for new cars during the first two quarters of this year.
For the second quarter ending June 30, the company reported higher revenue versus the same period a year ago. Reported revenue also beats estimates.Tower International consistently beat earnings consensus every quarter since the IPO in 2010. Revenue growth during the last quarter was reflective of the rising global auto sales that climbed 4% during the first half of this year.
However, the company also posted a net loss of $45.1 million due to some items that erased its earnings. One such item is partial redemption of unsecured notes. Excluding these items, the company's earnings grew 29% over the same period in 2012 from $0.80 per share to $1.03 per share.
Consequently, the management raised its full year earnings projections for the second time this year, citing favorable geographic mix from better North American earnings. Diluted adjusted earnings outlook was increased by 15%. Likewise, full-year projections for EBITDA and free cash flow were raised due to high upside potential and good performance during the first half of 2013. This is in line with the company's game plan to generate positive free cash flow to support its future acquisitions and expansions.
Automotive Systems Supplier
Another car parts supplier with outstanding performance on the trading floor is Magna International (MGA), which is bigger than Tower International by market capitalization. The company showed strong shares performance gaining an impressive 58.4% growth for this year. This was driven by solid financials and improved market condition that led to increased demand for new cars.
Magna International has more diversified portfolio. It is engaged in design and development, as well as in manufacturing of automotive systems including engineering and assembly of complete vehicles. It caters to cars and light trucks OEMs across three geographic locations; namely, Europe, North America and other parts of the world.
During the second quarter, the company reported good financial results that showed growth in all key parameters. Revenue grew 16% year-over-year at $9 billion. Adjusted EBITDA also increased by 15%, while net income grew 19%. Consequently, growth was also seen in diluted earnings per share from $1.48 to $1.78 per share, or an increase by 20% year-over-year.
Because of its innovation in technology, Magna International received two awards from its major clients. They are the Supplier Innovation Award from BMW and the Top Supplier Award in the Global Champion category, Volkswagen.
Today, the company continues to expand to untapped territories as it strives to bring its advanced technology and innovations to new markets. It has several operating units that already developed and are still developing innovations in light-weigthing, which is a key trend that the firm harps on to fuel its growth.
Automotive Sales Market Outlook
Global vehicle sales during the first two quarters of 2013 increased by 4% as short-term and long-term interest rates remained low. This was also propelled by improving financial market conditions and decreasing unemployment rates across the globe. Consequently, many equity market indices climbed to record high during the first half of the year, and many experts projected that the momentum will be sustained in the second half of 2013.
Emerging markets of South America and Asia led the pack with highest steady gains during the first two quarters at 9% year-over-year. Among the countries in these regions, China posted the biggest leap with 20% year-over-year growth. While a near-term moderation is expected, analysts still project that auto sales in China will end the year with 15% growth given that employment rates jumped 5% year-over-year.
In North America, passenger vehicle sales soared to a record high in six years, while purchases in the U.S. and Mexico continue to rebound to the highest level prior to the worldwide economic downturn in 2007. The third largest auto market, Western Europe, grew 3% during the period, as well. Recently, the Chinese market showed strengthened demand.
Leading indicators of global auto sales that include stable financial conditions, improving consumer confidence, increased money supply, and employment growth, are all still pointing upward. These will define growth of automotive sales for the second half of this year. Being suppliers to top car brands around the world, Tower International and Magna International are expected to grow, as well, and the rally will persist.
During the first half of the year, Toyota Motors Corporation (TM) still emerged as the top-selling automaker despite China sales woes. It sold 4.91 million vehicles worldwide due to solid sales in other regions, and driven by improved sales of Toyota Camry and Prius. Sales of Toyota's heavy trucks at 78,000 units also gave the company a boost to keep it ahead of its closest rival. Without Toyota's Hino trucks, global vehicle sales is only 4.83 million.
General Motors came in second with 4.85 million vehicles sold during the period. Both Toyota and GM are in close fight for the title over the decade. GM used to be the dominant title-holder for seven decades until it lost the top spot in 2008 to Toyota. It regained the title in 2011 and lost again to Toyota in 2012.
The Bottom Line
Regardless of who holds the title, Tower International and Magna International will enjoy the fight as the top-selling automakers are striving to improve their sales in order to grab the coveted number one spot. This means more orders from their valued clients, which is also tantamount to higher revenues to fuel their growth.
Stocks Discussed: TOWR, MGA, TM,