The auto parts industry is booming thanks to escalating vehicle sales, government incentives helping the auto industry, and the integration of advanced technologies. Therefore, investors could add fundamentally robust auto parts stocks Allison Transmission Holdings, Inc. (ALSN), Compagnie Générale des Établissements Michelin Société en commandite par actions (MGDDY), Garrett Motion Inc. (GTX), and Ituran Location and Control Ltd. (ITRN) to the portfolio now.
In the fiscal first quarter of 2024, U.S. new vehicle sales grew 5.1% despite the interest rate hike, which represents rising consumer interest in the auto industry. Automakers sold around 3.80 million vehicles from the year-ago quarter. The global automotive industry is projected to grow at a 6.8% CAGR, reaching $6.86 trillion by 2033.
According to the Internal Revenue Service (IRS), roughly 100,000 time-of-sale EV reports have been received this year alone, showcasing rising American customer interest in EVs. To meet this demand, the Treasury has dispensed over $580 million to dealers since January 1. This could reduce purchasing prices and enhance EV affordability, likely boosting future EV sales.
BloombergNEF’s EV outlook projects 730 million passenger EVs on the road by 2040, comprising 44% of global passenger vehicle sales by 2030.
Moreover, Artificial Intelligence (AI) is revolutionizing the automotive industry, driving advancements in autonomous vehicles and improving production capabilities. The global automotive AI market is expected to grow at a CAGR of 22.7% by 2030.
Furthermore, the auto parts market, a crucial segment responsible for ensuring the smooth functioning and longevity of vehicles, is poised to showcase resilience amid the burgeoning auto industry. The auto parts market is expected to reach $1.10 trillion by the end of the decade, growing at a CAGR of 6.8%.
Given the industry tailwinds, it's time to examine the fundamentals of the four stocks to buy in the A-rated Auto Parts industry, starting with the fourth in line.
Stock #4: Allison Transmission Holdings, Inc. (ALSN)
ALSN designs, manufactures, and sells fully automatic transmissions for medium and heavy-duty commercial vehicles and medium and heavy-tactical U.S. defense vehicles, and electrified propulsion systems worldwide.
On March 21, ALSN collaborated with Yutong Bus Co., Ltd., a leading bus manufacturer in China, to steadfastly grow its presence in Rwanda. Over the past decade, the companies have collaborated to export transit buses equipped with ALSN fully automatic transmissions to the African nation.
Recently, Kigali, Rwanda's capital city, once again upgraded its fleet with city transit buses equipped with Allison Torqmatic Series transmissions. This collaboration with Yutong to deliver transit buses to Rwanda is the latest example of ALSN’s continued growth in global export markets.
On March 20, ALSN partnered with New Flyer, a leading bus manufacturer in North America, and announced the selection of Allison-equipped electric hybrid buses by the New Orleans Regional Transit Authority. The New Flyer buses equipped with the Allison eGen Flex electric hybrid propulsion system will provide a more sustainable transportation solution to the city of New Orleans.
Its annualized dividend rate of $1 per share translates to a dividend yield of 1.24% on the current share price. Its four-year average yield is 1.82%. Over the past three and five years, ALSN’s dividend payments have grown at CAGRs of 2.6% and 9.4%, respectively.
ALSN’s trailing-12-month cash from operations of $784 million is 162% higher than the industry average of $299.22 million. Its trailing-12-month EBIT and net income margins of 30.54% and 22.17% are 202.2% and 278.2% higher than the industry averages of 10.11% and 5.86%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 13.4% and 2.3%, respectively, while its total assets grew at 3.9% and 3.5% CAGRs over the same periods.
For the fiscal fourth quarter that ended December 31, 2023, ALSN’s net sales and gross profit stood at $775 million and $371 million, up 7.9% and 9.8% year-over-year, respectively. Moreover, its adjusted EBITDA increased 13.1% from the prior-year quarter to $277 million.
For the same quarter, its net income and net earnings per share attributable to common stockholders stood at $170 million and $1.91, up 20.6% and 25.7% from the year-ago quarter, respectively.
Street expects ALSN’s revenue and EPS for the fiscal first quarter that ended March 2024 to increase 4.5% and 1.8% year-over-year to $774.11 million and $1.88, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 77.6% over the past year to close the last trading session at $80.88. Over the past three months, it has gained 42%.
ALSN’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B for Sentiment. Within the A-rated Auto Parts industry, it is ranked #8 out of 62 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, and Stability. Get all ratings of ALSN here.
Stock #3: Compagnie Générale des Établissements Michelin Société en commandite par actions (MGDDY)
Headquartered in France, MGDDY is a mobility company operating through Automotive; Road Transportation; and Specialty Businesses segments.
On April 11, MGDDY launched a new tyre conceived specifically to meet the demands of street cyclists. The MICHELIN City Street alleviates the everyday anxiety they can feel thanks to its superior protection against punctures and outstanding long life, whatever the type of road surface or conditions.
On April 3, MGDDY built on its success and experience alongside its partner teams in the UCI Downhill World Cup, MGDDY took a fresh look at its range of specific tyres for proponents of the sport. To address the demands of this highly-technical discipline where tires play such an important role, the 2.0-generation MICHELIN DH Racing Line line-up provides riders with superior, more finely-targeted performance thanks to a choice of three products: the MICHELIN DH16, the MICHELIN DH22, and the MICHELIN DH MUD.
Its annualized dividend rate of $0.67 per share translates to a dividend yield of 3.66% on the current share price. Its four-year average yield is 3.02%. Over the past three and five years, MGDDY’s dividend payments have grown at CAGRs of 33.9% and 5.3%, respectively.
MGDDY’s trailing-12-month cash from operations of $5.84 billion is significantly higher than the industry average of $275.56 million. Its trailing-12-month EBITDA and levered FCF margins of 17.99% and 10.47% are 62.8% and 87.2% higher than the industry averages of 11.05% and 5.59%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 11.5% and 5.2%, respectively, while its tangible book value grew at 15.7% and 11.1% CAGRs over the same periods.
For the fiscal year that ended December 31, 2023, MGDDY’s sales and operating income stood at €28.34 billion ($30.16 billion) and €2.65 billion ($2.82 billion), respectively. For the same year, its net income and earnings per share stood at €1.98 billion ($2.11 billion) and €2.77, respectively.
Moreover, its free cash flow came to €2.34 billion ($2.49 billion), compared to a free cash flow of negative €180 million ($191.53 million) in the previous year.
Street expects MGDDY’s revenue and EPS for the fiscal year ending December 2024 to be $30.40 billion and $1.65, respectively. The company surpassed consensus revenue estimates in three of the trailing four quarters.
The stock has gained 23% over the past nine months to close the last trading session at $18.42. Over the past six months, it has gained 18.8%.
MGDDY’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
MGDDY has an A grade for Stability and Quality and a B for Value. Within the same industry, it is ranked #7.
To see additional POWR Ratings for Growth, Momentum, and Sentiment for MGDDY, click here.
Stock #2: Garrett Motion Inc. (GTX)
Headquartered in Rolle, Switzerland, GTX designs, manufactures, and sells turbocharging, air and fluid compression, and high-speed electric motor technologies for original equipment manufacturers and distributors worldwide.
During the fourth quarter that ended December 31, 2023, GTX repurchased $35 million of common stock under its authorized share repurchase program. For the fiscal 2023, total repurchases of common stock equaled $213 million at an average price of $7.57 per share. Additionally, GTX’s Board of Directors authorized a new $350 million share repurchase program valid until December 31, 2024.
GTX’s trailing-12-month cash from operations of $465 million is 68.8% higher than the industry average of $275.56 million. Its trailing-12-month EBITDA and levered FCF margins of 15.59% and 7.75% are 41.1% and 38.6% higher than the industry averages of 11.05% and 5.59%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 8.6% and 2.9%, respectively, while its net income grew at a 48.3% CAGR over the past three years.
For the fiscal fourth quarter that ended December 31, 2023, GTX’s net sales and gross profit stood at $945 million and $189 million, up 5.2% and 17.4% year-over-year, respectively. Moreover, its adjusted EBITDA increased 3.6% from the prior-year quarter to $145 million.
For the same quarter, its net income available for distribution and earnings per common share stood at $52 million and $0.22, respectively.
Street expects GTX’s EPS for the fiscal first quarter that ended March 2024 to increase 90% year-over-year to $0.25. Its revenue is expected to be $954.50 million for the same quarter. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 28.6% over the past six months to close the last trading session at $9.50. Over the past nine months, it has gained 27.2%.
GTX’s POWR Ratings reflect this promising outlook. It has an overall rating of A, which indicates a Strong Buy in our proprietary rating system.
GTX has a B grade for Value, Stability, and Quality. Within the same industry, it is ranked #6.
For GTX’s other ratings (Growth, Momentum, and Sentiment), click here.
Stock #1: Ituran Location and Control Ltd. (ITRN)
Headquartered in Azor, Israel, ITRN provides location-based telematics services and machine-to-machine telematics products. It operates through two segments: Telematics Services and Telematics Products.
On April 3, ITRN paid its shareholders net of taxes at the rate of 25%, a cash dividend of $0.39 per share, totaling approximately $8 million.
Its annualized dividend rate of $1.56 per share translates to a dividend yield of 5.98% on the current share price. Its four-year average yield is 2.81%. Over the past three years, ITRN’s dividend payments have grown at a 24.7% CAGR.
As of December 31, 2023, the remaining amount under the buy-back program was $6.70 million. During 2023, a total of $6.60 million in ITRN's shares were repurchased by the company.
ITRN’s trailing-12-month asset turnover ratio of 1.05x is 70.4% higher than the industry average of 0.62x. Similarly, its trailing-12-month CAPEX/Sales of 4.45% is 91.5% higher than the industry average of 2.32%.
Over the past three and five years, its revenue grew at CAGRs of 9.2% and 4.8%, respectively, while its tangible book value grew at 22.6% and 19.1% CAGRs over the same periods.
For the fiscal fourth quarter that ended December 31, 2023, ITRN’s revenues and gross profit stood at $77.81 million and $38.40 million, up 3.8% and 7.1% year-over-year, respectively.
For the same quarter, its net income attributable to the company, and basic and adjusted earnings per share attributable to company’s stockholders increased 25.6% and 27.7% from the year-ago quarter to $12.02 million and $0.60, respectively.
Street expects ITRN’s EPS for the fiscal first quarter that ended March 2024 to increase 6.1% year-over-year to $0.59. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 18.5% over the past year to close the last trading session at $26.07. Over the past nine months, it has gained 10.9%.
ITRN’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
ITRN has an A grade for Quality and a B for Value, Stability, and Sentiment. It is ranked first within the same industry.
Click here for the additional POWR Ratings for ITRN (Growth and Momentum).
What To Do Next?
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MGDDY shares were unchanged in premarket trading Monday. Year-to-date, MGDDY has gained 2.56%, versus a 8.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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