And Now, Turn Your Attention to the Parts Makers

The Detroit auto show had a lot of us buzzing about the carmakers last week.  Let’s face it, new models and new innovations are exciting. But investors might be wise to pay some attention to auto-industry companies that weren’t making headlines at the auto show.
BorgWarner (NYSE: BWA) may have may have slipped under your radar last week, but it shouldn’t have. The Michigan-based parts supplier shot up 14 percent after revving its outlook for 2012. The company now expects earnings to grow at 23% to 27% over last year, with sales growth in the area of 10-12% over 2011. Even after last week’s surge, BWA still sells for 16.7 times earnings. At its projected rate of growth, it’s now selling at a forward P/E of 13.
And despite some serious appreciation in value over the past couple years, BorgWarner has a bright future. The company’s focus is on making components that maximize fuel efficiency and reduce emissions from gasoline and diesel engines. High fuel prices, consumer values and government regulations should only help to heighten the need for those products in years to come.
BWA counts just about every major manufacturer among its customers, as well as John Deere. Electric cars like Nissan’s Leaf and GM’s Volt have generated a lot of attention over the past couple years. But the gasoline engine is not going away anytime soon, especially with American oil discoveries on a furious upward clip. BWA’s products are making the good old gas engine kinder to the environment, not to mention easier on the wallet at the pump.
So while BWA has had an incredible run from the lows of 2009 -- including a near-double in 2010 -- it still has fuel in the tank. Maybe we can chalk that up to the company’s fuel-efficient parts. Any pullback in price could make BorgWarner look cheap. It’s my smallest holding, so I’m willing to add more. I’ll be waiting to see if the stock takes a breather here before adding shares.

And one to watch for ...
Johnson Controls (NYSE: JCI), another maker of auto parts, reports earnings this Thursday. Johnson Controls has increased sales each quarter for the past seven quarters.
JCI’s sales have grown an average of more than 21% percent per year since 2009, and eclipsed its 2008 sales mark of $38 billion last year. It also bested its 2008 earnings, registering $2.36 per share in 2011. Yet Johnson’s selling at cheaper prices than it was in 2007 and 2008. It currently sells at a P/E of 15.
JCI makes car seats, consoles, instrument panels and electronics for Ford, GM, Daimler and other carmakers. It’s the largest car seat supplier in the world. It also makes batteries for hybrid and electric vehicles, as well as for advanced “start-stop” gasoline engines. And it’s building a manufacturing plant to make lithium-ion batteries for hybrids -- with $300 million in help from Uncle Sam. So, like Borg-Warner, JCI has a foot in the future of automotive sales as well as one in the present.
Johnson is far from a pure play on car and truck sales. About 36 percent of its sales in 2011 were from a host of other products, including all types of controls for buildings, whether it be for lights, security, heating or air conditioning. But don’t let that scare you away. Many of Johnson’s building products are designed to improve efficiency, another trend we can expect to continue. If JCI interests you, tune in for Thursday’s quarterly earnings report.

There's always something to worry about
Slowing economies in Europe and other parts of the world could hurt suppliers, including BWA and JCI, since car sales will lag. Inflationary pressures and rising raw materials costs also pose risks.
But BWA’s forecast for growth accounts for those factors, so investors should take that as a sign of confidence from the parts manufacturer. These two companies look attractive at today’s prices and are positioned to do well in the years ahead. Investors would be wise to give them a test drive.

In addition to appearing on this site, this column was syndicated by the Motley Fool. 

These IPOs Are Just Too Exciting For Me

There's been a lot of buzz about social-media companies offering shares of their stock to the public.
So much news is generated by these initial public offerings from companies like LinkedIn (LNKD), Pandora (P) and Groupon, that I hear people who don't even trade stocks asking how they can get in.
I wouldn't touch one of these IPOs. At least not anytime soon. Sure, I'll miss out on the buzz and the chance to hold a piece to the next big thing.
But I like to keep in mind, when it comes to investing, boring is often better.
History is on my side here.
The most popular IPOs often fall flat on their faces over the course of a a few months or a year or two.

Back when Priceline.com (PCLN) came onto the market back in 1999, it quickly shot up to a price of more than $974 a share, doubling off its initial price in just a couple weeks. It promptly fell back down to Earth, however, and within two years, it was trading for a measly 8 bucks.
Priceline is now a consistent earnings producer with growing profits and widening margins. But it took many years to establish itself as such. Investors who could not wait paid a dear price.

That's reason to cringe over all the excitement about the LinkedIn IPO. Its shares were quickly selling for more than $102, even though the company has yet to establish any record of earnings.
Now that it has come down to about $65, investors are still left asking: Is it now a bargain, or still wildly overvalued? Who's to know?

Take a look at some of the charts from some popular recent IPOs as investors try to determine what their shares should be selling at:

First is Demand Media (DMD)

Now, LinkedIn

General Motors (GM)

Motricity (MOTR)

I don't know about you, but none of those high-flying IPOs look like they've made very good investments to me.

That's not to say these companies won't someday make good investments. But why not wait until they establish themselves and you can see for yourself what kind of earnings these companies can produce over time?
Those who took a wait-and-see approach on Priceline would have avoided catastrophic losses in 2000 and 2001, then picked up shares years later and rode them to terrific profits.

Good things often come to those who wait.


Have you invested in an IPO? What was your experience? If not, would you?