In light of the China Passenger Car Association reporting record Tesla Inc. (TSLA, Financial) vehicle sales within Mainland China during March, five auto companies with high financial strength and business predictability and are trading below Peter Lynch’s earnings line are Akwel (XPAR:AKW, Financial), Brembo SpA (MIL:BRE, Financial), Good Year Lastikleri TAS (IST:GOODY, Financial), Lear Corp. (LEA, Financial) and Tofas Turk Otomobil Fabrikasi AS (IST:TOASO), according to the All-in-One Screener, a major GuruFocus Premium feature.
China’s passenger car association reports record Tesla sales as Wuhan eases lockdown
On Thursday, China’s passenger car association said Tesla sold 10,160 vehicles in China during March, the “highest ever monthly sales in the world’s largest auto market” according to Reuters. The news came during a time when Wuhan, the site where Covid-19 was first reported, lifted its Jan. 23 lockdown.
CNBC added that automakers “could look to China for answers how to safely restart business activity in the U.S.” Fiat Chrysler Automobiles NV (FCAU, Financial) said on Wednesday that it implemented protocols to prevent the spread of the virus for Chinese workers to gradually and safely return to the factory plants. Fiat Chrysler said in an email statement that it will “only restart operations with safe, secure and sanitized workplaces” to protect its employees.
With the Covid-19 outbreak showing signs of peaking around the globe, investors might seek opportunities in financially-strong auto companies that are trading below the Peter Lynch earnings line. Lynch, the legendary investor of the Fidelity Magellan Fund, sought companies that traded below a price-earnings ratio of 15. Because the auto industry is sensitive to business cycle changes, I raised the GuruFocus business predictability rank requirement to four stars, limiting the search to companies that have shown strong and consistent earnings over the past 10 years.
Akwel
Akwel designs, manufactures and sells automotive equipment ranging from door-opening mechanisms to hinging mechanisms. GuruFocus ranks the French auto parts company’s profitability 9 out of 10 on several positive investing signs, which include expanding operating margins and a return on equity that outperforms over 70% of global competitors.
Akwel’s valuation ranks 7 out of 10 on the back of a price-earnings ratio of 5.52, which outperforms 83.51% of global competitors, and a price-book ratio of 0.59, which is near a five-year low.
Brembo
Brembo manufactures brake discs and calipers for automobiles and motorcycles. GuruFocus ranks the Italian auto parts company’s profitability 9 out of 10 on several positive investing signs, which include expanding operating margins and a return on equity that outperforms 88.62% of global competitors.
Brembo’s valuation ranks 6 out of 10: Even though the company’s price-to-free-cash-flow ratio underperforms 85.38% of global competitors, it has a price-earnings ratio below 10 and a price-sales ratio near a five-year low.
Good Year Lastikleri
Good Year Lastikleri, a Turkish subsidiary of Goodyear Tire & Rubber Co. (GT, Financial), produces and distributes tires and other rubber products. GuruFocus ranks the company’s profitability 9 out of 10 on several positive investing signs, which include expanding operating margins, a 4.5-star business predictability rank and a high Piotroski F-score of 7.
Good Year Lastikleri’s valuation ranks 10 out of 10 on the back of price-earnings and price-book ratios near 10-year lows. The company’s price-earnings ratio of 4.71 outperforms 89.73% of global competitors.
Lear
Lear designs, develops and manufactures automotive seating, electrical systems and components. GuruFocus ranks the Southfield, Michigan-based company’s profitability and valuation 8 out of 10 on several positive investing signs, which include expanding operating margins, a return on equity that outperforms 88.98% of global competitors and price valuations that outperform over 77% of global vehicles and parts companies.
Lear’s price-earnings ratio is 7.42, approximately half that of Lynch’s threshold of 15.
Gurus with large holdings in Lear include Pioneer Investments (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
Tofas Turk Otomobil
Tofas Turk Otomobil manufactures passenger cars and light commercial vehicles. GuruFocus ranks the company’s profitability and valuation 9 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, expanding operating margins and price valuations near 10-year lows. Tofas Turk Otomobil’s price-earnings ratio of 6.24 outperforms 79.69% of global vehicles and parts companies.
Disclosure: No positions.
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