The auto parts industry is booming thanks to the incorporation of advanced components, increasing new vehicle sales, the rising popularity of DIY auto repairs, rapid adoption of EVs, and escalating demand for new and advanced auto parts to maintain the vehicle.
Given this backdrop, investors could consider buying fundamentally strong auto stocks Motorcar Parts of America, Inc. (MPAA), Autoliv, Inc. (ALV), and Strattec Security Corporation (STRT), given their solid growth prospects.
The auto parts industry is not cyclical, as there is a consistent demand for auto parts irrespective of economic conditions. Although new vehicle sales contribute to this demand, the industry is not entirely dependent on them. U.S. new vehicle sales rose 5.1% year-over-year to 1.45 million units in May.
Automobile prices have been rising over the past few years due to high raw material costs and a shortage of chips, making affordability an issue for prospective car buyers. This has prompted them to keep their older cars for longer, thus driving the need for auto parts, as older vehicles need more maintenance to keep them running.
Moreover, the need for accessories, better performance, personalization, and customization is driving the growth of the automotive aftermarket industry. The global automotive aftermarket industry is estimated to hit $568.19 billion by 2032, growing at a CAGR of 3.5%.
Meanwhile, rising new vehicle sales contribute to the growing need for cutting-edge components, such as sensors, microprocessors, cameras, etc., for the car to operate and perform safely. The global automotive components market is anticipated to reach more than $3.43 trillion by 2033, growing at a CAGR of 5.7%.
Considering these factors, let’s examine the fundamentals of the Auto Parts stock picks, starting with the third in line.
Stock #3: Motorcar Parts of America, Inc. (MPAA)
MPAA manufactures, remanufactures, and distributes heavy-duty truck, industrial, marine, and agricultural application replacement parts in the U.S. The company offers rotating electrical products, wheel hub assemblies and bearings, and brake-related products.
On February 12, 2024, MPAA announced that it had introduced expanded product coverage for its Quality-Built brake pad and brake rotor program, with over 20 new part numbers covering another seven million vehicles in operation. The new part numbers offered through QB, Quality-Built, and Quality-Built Black Series brands serve the professional installer market.
Over the past three and five years, MPAA’s revenue grew at CAGRs of 11.4% and 9.3%, respectively. Its EBIT grew at a CAGR of 8.5% over the past three years.
For the fiscal third quarter that ended December 31, 2023, MPAA’s net sales and gross profit stood at $171.86 million and $30.04 million, up 13.2% and 43.1% year-over-year, respectively. For the same quarter, its operating income and EBITDA increased 170.1% and 69.5% from the year-ago quarter to $9.52 million and $11.24 million, respectively.
Street expects MPAA’s EPS for the quarter ending June 30, 2024, to increase 72.8% year-over-year to $0.07. Its revenue for the quarter that ended March 31, 2024, is expected to rise 2% year-over-year to $198.60 million. MPAA has gained 8.1% intraday, closing the last trading session at $5.50.
MPAA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Growth and Value. It is ranked #8 out of 61 stocks in the A-rated Auto Parts industry. Get MPAA’s Momentum, Stability, Sentiment, and Quality ratings here.
Stock #2: Autoliv, Inc. (ALV)
Headquartered in Stockholm, Sweden, ALV develops, manufactures, and supplies passive safety systems to the automotive industry in Europe, the Americas, China, Japan, and the rest of Asia.
On June 4, 2024, ALV’s Autoliv China and XPENG AEROHT, Asia's leading flying car innovator, signed a strategic cooperation agreement to pioneer safety solutions for future mobility. ALV and XPENG AEROHT have collaborated on various initiatives to develop safety solutions for flying cars.
Over the past three and five years, ALV’s revenue grew at CAGRs of 10.6% and 4.2%, respectively. Its EBITDA grew at a CAGR of 11.9% over the past three years.
ALV’s net sales for the first quarter that ended March 31, 2024, stood at $2.62 billion, up 4.9% year-over-year. Its adjusted operating income grew 51.9% over the prior-year quarter to $199 million. In addition, its net income and adjusted earnings per share increased 71.6% and 75.6% from the year-ago quarter to $127 million and $1.58, respectively.
For the quarter ending June 30, 2024, ALV’s revenue and EPS are expected to increase 5.3% and 18.1% year-over-year to $2.77 billion and $2.28, respectively. It surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive. The stock has gained 49.5% over the past year to close the last trading session at $126.89.
ALV’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to Buy in our proprietary rating system.
ALV has an A grade for Growth and a B for Sentiment and Quality. It is ranked #6 in the same industry. Click here to see the additional POWR Ratings of ALV for Value, Momentum, and Stability.
Stock #1: Strattec Security Corporation (STRT)
STRT designs, develops, manufactures, and markets automotive access control products under the VAST Automotive Group brand, primarily in North America. It provides mechanical and electronically enhanced locks and keys, passive entry, passive start systems, power deck lid systems, door handles, and related products.
Over the past three and five years, STRT’s revenue grew at CAGRs of 8.1% and 2.1%, respectively. Its total assets grew at a CAGR of 4.5% over the past three years.
For the fiscal third quarter that ended March 31, 2024, STRT’s net sales stood at $140.77 million, up 10.7% year-over-year. The company’s gross profit rose 46.8% from the year-ago quarter to $14.68 million. Furthermore, its net income stood at $1.51 million and $0.37 per share, compared to a net loss of $2.26 million and $0.57 per share in the prior-year quarter.
Analysts expect STRT’s EPS for fiscal 2025 to increase 149.2% year-over-year to $1.47. Its revenue for the quarter ending June 30, 2024, is expected to rise 7% year-over-year to $141.51 million. The company surpassed Street revenue estimates in each of the trailing four quarters. STRT’s stock has gained 53.9% over the past year to close the last trading session at $28.96.
STRT’s robust prospects are reflected in its POWR Ratings. It has an overall A rating, equating to a Strong Buy in our proprietary rating system.
STRT has an A grade for Growth and Sentiment and a B for Value. It is ranked #4 in the Auto Parts industry. Beyond what we stated above, we have also rated STRT for Momentum, Stability, and Quality. Get all the STRT ratings here.
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ALV shares were trading at $123.68 per share on Tuesday morning, down $3.21 (-2.53%). Year-to-date, ALV has gained 13.51%, versus a 11.12% 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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