Britain's GKN (OTCPK:GKNLY)
is the kind of stock that can break an investor's heart. On one hand,
the company's strong share in aerostructures and engine structures looks
attractive as significant programs move forward at Airbus Group (OTCPK:EADSY) and Boeing (NYSE:BA).
Likewise, the company's leadership in driveline components is appealing
as penetration of all-wheel drive and hybrid vehicles grows. The
problem is that aerospace and autos are cyclical businesses where OEMs
habitually lean hard on suppliers and GKN doesn't have the best record
of attractive sustained operating margins, free cash flow, or returns on
capital.
If things go right, meaning that the
aerospace and auto markets remain healthy, key programs ramp as
expected, and GKN achieves better operating leverage, the shares could
do very well over the next two to four years. If GKN drops the ball on
margins, though, or if demand for aircraft and/or autos disappoint, the
shares aren't likely to do so well.
Read more here:
GKN Gets Interesting If They Can Get The Margins Up
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