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Auto Consistency: 3 Stocks Delivering Gains

As the growing global demand for vehicles drives robust expansion in the auto parts industry, here are fundamentally solid stocks Continental (CTTAY), Garrett Motion (GTX), and DENSO (DNZOY), which look poised to capitalize on the industry tailwinds and deliver gains this month. Read on...

The growing complexity of advanced vehicle technologies fuels a constant need for sophisticated and innovative auto parts. Additionally, the application of cutting-edge technology in automotive part production is anticipated to enhance sales.

So, investors looking for strong performers may find opportunities in robust auto stocks Continental Aktiengesellschaft (CTTAY), Garrett Motion Inc. (GTX), and DENSO Corporation (DNZOY), which show promising potential for gains this month. They also boast quality profit margins.

The rise of e-commerce platforms has revolutionized the accessibility and distribution of auto parts. Consumers and businesses can now easily source diverse products online, leading to increased market reach and efficiency in the supply chain.

The global auto parts manufacturing market is likely to reach $701.57 billion this year. Due to the increasing use of advanced technology and components inside newer vehicles, the auto parts industry is expected to grow substantially in the long run.

The global auto parts manufacturing market is expected to grow at a CAGR of 6.1% to reach around $1.20 trillion by 2032.

Furthermore, the auto parts industry capitalizes on the burgeoning automotive markets in emerging economies. As these nations undergo economic development and witness a surge in disposable income, the escalating demand for vehicles inherently propels a corresponding upswing in the need for auto parts.

In addition, the global automotive aftermarket industry’s revenue is expected to grow at a CAGR of 4% to reach $589.01 billion by 2030. Longer vehicle lifespans and consumer preferences for customization and upgrades drive this growth.

Given the backdrop, let's look at the fundamentals of the three best Auto Parts stocks, starting with the third in line.

Stock #3: Continental Aktiengesellschaft (CTTAY)

Headquartered in Hanover, Germany, CTTAY offers intelligent solutions for vehicles, machines, traffic, and transportation worldwide. It operates through four sectors: Automotive; Tires; ContiTech; and Contract Manufacturing.

CTTAY’s trailing-12-month Capex/Sales of 5.18% is 59.5% higher than the 3.24% industry average. Its 7.96% trailing-12-month Return on Total Capital is 32.5% higher than the 6.01% industry average.

On November 5, CTTY announced it was leading a three-year project, "Digitalization of the Industrialization Process in the Automotive and Supplier Industries" (DIAZI), in collaboration with eight IT and process optimization companies, universities, and start-ups. Sponsored by the German Federal Ministry for Economic Affairs and Climate Action, the project, managed by Continental's User Experience business area, aims to digitize the entire production process for automotive components.

The initiative addresses the challenges of faster development cycles, complex supply chains, and evolving customer requirements, ultimately contributing to more effective industrialization in the automotive industry and promoting sustainable mobility.

The company pays an annual dividend of $0.17, which translates to a yield of 2.20% on the prevailing price level. Its four-year average dividend yield is 2.49%.

CTTAY’s adjusted sales for the nine months that ended September 30, 2023, increased 6.2% year-over-year to €30.88 billion ($33.54 billion). Its adjusted EBIT rose 20.3% from the year-ago period to €1.71 billion ($1.86 billion). The company’s net income attributable to the shareholders of its parent came in at €889.40 million ($965.87 million), compared to a net loss of €222 million ($241.09 million) in the same period last year.

Analysts expect CTTAY’s EPS for fiscal year 2023 to increase significantly year-over-year to $0.67. Its revenue for the current year is expected to increase 9.5% year-over-year to $45.53 billion.

Over the past year, the stock has gained 21.1% to close the last trading session at $7.52. It returned 26% year-to-date.

CTTAY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.

It has an A grade for Stability and Value and a B for Quality. Among the 63 stocks in the A-rated Auto Parts industry, it is ranked #13.

Beyond what we stated above, we also have given CTTAY grades for Growth, Momentum, and Sentiment. Get all the CTTAY ratings here.

Stock #2: Garrett Motion Inc. (GTX)

Headquartered in Rolle, Switzerland, GTX and its subsidiaries design, manufacture, and sell turbocharger and electric-boosting technologies for light and commercial vehicle original equipment manufacturers worldwide.

GTX’s trailing-12-month EBIT and EBITDA margins of 13.96% and 16.20% are 88.5% and 46.8% higher than the 7.41% and 11.04% industry average.

As of September 30, GTX had repurchased $161 million of common stock under its authorized share repurchase program, leaving a remaining repurchase capacity of $72 million.

GTX’s net sales for the fiscal third quarter ended September 30, 2023, increased 1.6% year-over-year to $960 million. Its gross profit and net income amounted to $176 million and 57 million. In addition, its adjusted EBITDA rose 4.1% from the prior-year quarter to $152 million.

For the fiscal year ending December 2023, GTX’s EPS and revenue are expected to increase 25.6% and 7.9% year-over-year to $0.94 and $3.89 billion.

The stock gained marginally intraday to close the last trading session at $7.47.

GTX’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It has a B grade for Value, Stability, and Quality. It is ranked #8 in the same industry.

To access GTX’s Growth, Momentum, and Sentiment ratings, click here.

Stock #1: DENSO Corporation (DNZOY)

Headquartered in Kariya, Japan, DNZOY is engaged in the manufacture and sale of automotive parts. It produces air-conditioning systems, powertrain systems, safety and cockpit systems, and automotive service parts. It also offers industrial and agricultural solutions and household air conditioning equipment.

DNZOY’s trailing-12-month net income margin of 5.48% is 24.7% higher than the 4.40% industry average. The stock’s 5.38% trailing-12-month Capex/Sales is 65.2% higher than the industry average of 3.25%.

On October 19, DNZOY and Koito Manufacturing Co., Ltd. announced a collaboration to enhance the object recognition capabilities of vehicle image sensors, particularly focusing on improving driving safety at night. Both companies are committed to advancing vehicle safety and aspire to achieve zero traffic accident fatalities.

Through this joint effort, the companies aim to contribute significantly to the advancement of next-generation mobility and the realization of a safer driving environment.

DNZOY’s consolidated revenues for the fiscal second quarter ended September 30, 2023, increased 16.3% year-over-year to ¥3.51 trillion ($23.27 billion). Its consolidated operating profit rose 36.3% over the prior-year quarter to ¥211.80 billion ($1.40 billion). Its consolidated profit attributable to owners of the parent company increased 59.7% year-over-year to ¥168.90 billion ($1.12 billion).

The company’s forecast for the fiscal year ending March 31, 2024, indicates positive changes in key financial metrics. The projected revenue is ¥7 trillion ($46.41 billion), reflecting a 4.5% increase from the previous forecast. Operating profit is expected to reach ¥630 billion ($4.18 billion), showing a 5% rise. Additionally, the return on equity (ROE) is projected to be 9.7%.

Street expects DNZOY’s revenue for the fiscal year ending March 2024 to increase 96.1% year-over-year to $47.17 billion.

The stock has gained 30.4% year-to-date to close the last trading session at $16.01.

DNZOY’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.

It has an A grade for Growth and a B for Stability and Quality. It is ranked #3 in the same industry.

Click here to see DNZOY’s Value, Momentum, and Sentiment ratings.

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DNZOY shares were trading at $16.31 per share on Thursday morning, up $0.30 (+1.87%). Year-to-date, DNZOY has gained 33.96%, versus a 18.96% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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