Now that the dust has settled around the General Motors public offering, average investors who didn’t have access to the IPO shares are probably wondering how they can take advantage of the resurgence in global auto demand.
To be clear, General Motors’s recovery is a reflection of a broader trend. As the automotive industry rebounds from the devastating slump in sales it saw in 2008 and 2009, car manufacturers (and those who supply them with raw materials and other components) are expected to rally too.
According to a recent report from San Jose market research firm, Global Industry Analysts Inc., the world auto supply market “is projected to regain sufficient poise… to reach $329.8 billion by the year 2015.” The report projects a healthy annual sales growth rate of 5% over the same period. “Growth during this period will be driven by resurgence in new car purchases, reappearance of consumer preferences for sport utility vehicles and pickup trucks, and strong demand for alternative vehicles. Increase in automotive production and sales across Asian countries also augurs well for the market.”
BLACK ENTERPRISE talked to a handful market-watchers to get some investment ideas that play on this trend. What we found are four overlooked stocks with promise.
1) Tenneco Inc. (ticker: TEN, $36) Tenneco is a $2.15 billion (market cap) manufacturer of supplies auto emission control products and ride control systems for car manufacturers around the world. “They benefitting from the whole global expansion of reduced global emissions—here in the U.S. and internationally,” says Joe A. Gilbert, portfolio manager of the Veracity Small-Cap Value Fund (VSCVX) at Integrity Asset Management. “Tennaco makes mufflers, and everything from the tailpipe back up through the car. With this stock, you’re taking part in the green theme—but you’re also getting in on global demand for cars, trucks. The stock has had a great run this year, but there’s more to come.”
2) American Axle & Manufacturing Holdings Inc. (ticker: AXL, $11) Simply put, this $767 million (market cap) company makes car axles, drivetrain systems, chassis modules, and other major components for all types of autos, from cars and SUVs to light trucks. Says Gilbert: “70% of their business is GM. If GM does well , these guys will do well.” Gilbert says an investment in AXL means you’re “getting in on GM’s coattails and riding the GM wave.”
3) Molycorp Inc. (ticker: MCP, $30) Molycorp Inc., a $2.5 billion (market cap) rare materials supplier, is the only producer of rare earth oxide in the Western Hemisphere. It also produces metals, alloys and magnets used in the making of many consumer and industrial products. They also produce a mineral called molybdenum. What does all this have to do with cars? Arnett Waters, principal at A.L. Waters Capital, LLC, says “molybdenum, is a key element used to strengthen steel for car production and many other things.” Waters likes Molycorp’s prospects as a global supplier. “Outside of the U.S., China and India are building cars for their own countries. More and more of the materials they need are hard to find. If you’re looking for ways to invest in autos you need to be buying into companies that produce basic elements.”
4) Impala Platinum Holdings Ltd. (ticker: IMPUY, $30) This $18.4 billion (market cap) South African company mines one of the Earth’s most precious metals: platinum. One of the many reasons Arnett Waters likes IMPUY: “Platinum’s demand has been affected by the worldwide demand for cars. All cars will have catalytic converters going forward, and a key element used to make those converters is platinum.”