As vehicles become more sophisticated and incorporate advanced technology, there is a rising need for specialized components and parts. Backed by extensive technology integration and heightened research and development investments, the auto parts market is anticipated to hit $755 billion by 2026, demonstrating a CAGR of 7.5% from 2023 to 2032.
Given the backdrop, in this piece, I have highlighted three quality auto stocks, American Axle & Manufacturing Holdings, Inc. (AXL), Garrett Motion Inc. (GTX), and Commercial Vehicle Group, Inc. (CVGI), which are better equipped to capitalize on the industry’s growth than QuantumScape Corporation (QS). Let us understand why.
Despite the buzz surrounding Electric Vehicles (EVs), QS, an early-stage pre-revenue company that commercializes solid-state lithium-metal batteries for use in EVs, is yet to fully harness the industry’s trends and prospects, evident from massive losses in its fiscal second quarter results.
The company reported a loss from operation of $123.54 million, while its net loss amounted to $116.51 million and $0.26 per share. Analysts predict that the company is likely to continue reporting negative earnings per share in both the third and fourth quarters of 2023.
Furthermore, QS recently completed a $300 million offering, which did not bode well with investors and led to a significant decline in the company's stock price. QS’ shares have plunged 29.1% over the past year and 4.7% over the past month to close the last trading session at $6.54.
On the other hand, the surging demand for EVs plays a pivotal role in propelling growth within the automotive industry. In the U.S. market alone, revenue generated from EV sales is projected to experience a substantial upswing, reaching approximately $70.10 billion by 2023, exhibiting a robust CAGR of 18.2% spanning 2023 to 2028.
Moreover, the surge in vehicle customization, rising disposable incomes, and the ever-increasing automotive safety standards are driving the expansion of the global automotive repair and maintenance services market.
Projections indicate that this market is set to reach around $915.88 billion in 2023 and is expected to sustain a consistent growth path, with a CAGR of 7.2%, ultimately achieving a market value of $1.85 trillion by 2033.
Given the bleak fundamentals of QS and favorable industry prospects, investors looking to capitalize on the industry tailwinds could consider buying AXL, GTX, and CVGI instead. To that end, let us dive into the fundamentals of these featured Auto Parts stocks, starting with the third choice.
Stock #3: American Axle & Manufacturing Holdings, Inc. (AXL)
AXL designs, engineers, and manufactures driveline and metal-forming technologies that support electric, hybrid, and internal combustion vehicles. It operates through Driveline and Metal Forming segments.
On May 5, AXL announced a significant investment of $10 million in the Global Strategic Mobility Fund (GSMF). This venture capital fund is managed by EnerTech Capital. By becoming a strategic partner in this endeavor, AXL secures access to EnerTech's extensive network of business partnerships and emerging technologies.
These resources are aimed at promoting innovation in mobility that can ultimately enhance AXL’s products and operational capabilities. David C. Dauch, AXL’s Chairman and Chief Executive Officer, expressed enthusiasm about collaborating with EnerTech and its global alliances to support AXL’s overarching mission of accelerating the future and fostering the development of the next generation of mobility innovations.
AXL’s trailing-12-month CAPEX/Sales of 3.25% is marginally higher than the industry average of 3.24%. Its trailing-12-month asset turnover ratio of 1.06x is 6.5% higher than the industry average of 1x. Furthermore, the stock’s trailing-12-month cash per share of $4.36 is 80.2% higher than the industry average of $2.42.
AXL’s net sales for the fiscal second quarter (ended June 30, 2023) increased 9.2% year-over-year to $1.57 billion, while its gross profit rose 10.1% from the year-ago value to $178.20 million.
During the same period, the company's net income and EPS came in at $8 million and $0.07, respectively. Also, its total current assets amounted to $2.11 billion, increasing 5.8% compared to $1.99 billion as of December 31, 2022.
Street expects AXL’s revenue for the fiscal third quarter (ending September 2023) to increase 3.2% year-over-year to $1.58 billion. Its EPS is expected to be $0.15 for the same quarter and improve by 10.5% annually over the next five years. Moreover, the company surpassed its EPS and revenue estimates in three of the trailing four quarters, which is impressive.
The stock gained marginally intraday to close the last trading session at $7.36.
AXL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value. In the 60-stock A-rated Auto Parts industry, it is ranked #34. Click here to see AXL’s ratings for Growth, Momentum, Stability, Sentiment, and Quality.
Stock #2: Garrett Motion Inc. (GTX)
Headquartered in Rolle, Switzerland, GTX designs, manufactures, and sells turbochargers and electric-boosting technologies for light and commercial vehicle original equipment manufacturers worldwide. The company’s offerings include commercial vehicle turbochargers, light vehicle gasoline, and diesel, as well as electrified vehicles.
On June 28, GTX celebrated the expansion of its Wuhan Plant in Hubei, China. The Wuhan facility’s multi-phase expansion included establishing its first high-speed automated production line, specializing in advanced Variable Nozzle Technology (VNT) for turbo passenger vehicles.
This strategic investment resulted in a 50% increase in the plant’s production capacity, driven by the growing demand for boosting technologies. These technologies enable engine downsizing and enhance fuel efficiency for Internal Combustion Engines (ICE) and electrified powertrains.
In the same month, GTX revealed its contribution in BMW Group’s dedication to advancing zero-emission hydrogen fuel cell vehicles. This contribution comes in the form of an innovative electric fuel cell compressor developed by GTX’s research and development team.
BMW Group recently unveiled its plans to test the second generation of its hydrogen fuel cell propulsion system in a limited production run of the BMW iX5 Hydrogen model, which will benefit from GTX’s cutting-edge modular fuel cell compressor designed for hydrogen fuel cell electric vehicles.
The stock’s trailing-12-month net income and levered FCF margins of 9.65% and 7.68% are 119.5% and 50.6% higher than the 4.40% and 5.10% industry averages, respectively. Likewise, its trailing-12-month ROTC of 30.26% is 397.9% higher than the industry average of 6.08%.
For the fiscal second quarter, which ended June 30, 2023, GTX’s net sales increased 17.7% year-over-year to $1.01 billion, while its gross profit rose 19.5% from the year-ago value to $202 million.
During the same period, the company’s cash and cash equivalents came in at $498 million, up 94.3% compared to $246 million as of December 31, 2022. Moreover, its adjusted EBITDA rose 23.2% from the prior-year quarter to $170 million.
The consensus revenue estimate of $1.01 billion for the second quarter (ending September 2023) represents a 6.9% improvement year-over-year. The consensus EPS estimate of $0.23 for the same quarter reflects a 10% increase year-over-year. Additionally, the company topped its revenue estimates in three of the trailing four quarters, which is promising.
Over the past year, the stock has gained 29.9% to close the last trading session at $7.87.
GTX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, and Quality. Within the same A-rated industry, it is ranked #7. Click here to see the other ratings of GTX for Momentum and Sentiment.
Stock #1: Commercial Vehicle Group, Inc. (CVGI)
CVGI designs, manufactures, produces, and sells components and assemblies in North America, Europe, and the Asia-Pacific regions. The company operates in four segments: Vehicle Solutions; Electrical Systems; Aftermarket & Accessories; and Industrial Automation.
On July 13, CVGI announced the launch of its aftermarket e-commerce venture, AftermarketTruckParts.com, aimed at providing comprehensive support to commercial vehicle operators. Initially, this service will be available in the United States, offering CVGI’s well-known brands such as Bostrom Seats, National Seats, Sprague windshield wiper systems, and Moto Mirror products for online purchase.
Customers can easily explore the company's product offerings, place orders seamlessly, and have them delivered directly from the factory within a matter of days. This development underscores the user-friendly and rapid nature of the purchasing experience offered by the company's online platform.
On June 26, CVGI was included in the US small-cap Russell 2000® Index during the 2023 Russell indexes reconstitution. Andy Cheung, the Chief Financial Officer, while expressing his delight with the development, stated, “We are pleased to have been added as a member of the U.S. small-cap Russell 2000® Index, one of the most widely cited performance benchmarks for emerging U.S. companies,”
The inclusion of CVGI in the US small-cap Russell 2000® Index emphasizes CVGI's proactive stance toward growth and engagement with investors by enhancing its presence and involvement within the investment community.
CVGI’s trailing-12-month asset turnover ratio of 1.91x is 135.7% higher than the industry average of 0.81x.
In the fiscal second quarter that ended on June 30, 2023, CVGI’s revenues increased 4.5% year-over-year to $262.19 million, while its gross profit grew 75.5% from the prior-year quarter to $38.40 million.
The company’s adjusted operating and net incomes improved 105.8% and 150.6% from the year-ago values to $16.66 million and $10.68 million, respectively. In addition, its EPS came in at $0.30, up 275% year-over-year.
Analysts expect CVGI’s EPS for the third quarter (ending September 2023) to increase 62.2% year-over-year to $0.24. While its revenue for the same quarter is expected to increase 1.2% year-over-year to $254.34 million.
CVGI’s shares surged 74.2% over the past year to close the last trading session at $7.82.
It’s no surprise that CVGI has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Growth and Value and a B for Sentiment and Quality. In the same industry, it is ranked #6.
In addition to the POWR Ratings we’ve stated above, we also have CVGI’s ratings for Momentum and Stability. Get all CVGI ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
QS shares were trading at $6.64 per share on Friday afternoon, up $0.10 (+1.53%). Year-to-date, QS has gained 17.11%, versus a 13.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
3 Auto Stock Buys Outperforming QuantumScape (QS) StockNews.com
