BorgWarner Bumping Along The Bottom In Search Of A Spark

Vehicle components supplier BorgWarner (BWA) continues to sputter along, having not really gone anywhere over the past three months after a nasty decline from the highs to start the year. BorgWarner’s peak-to-today drop has actually exceeded the overall parts sector (down 25% versus down about 15%), even though the company’s actual performance hasn’t been that bad and its positioning for the future transition to hybrids and electrics look good.

I think BorgWarner is cheap enough to warrant serious consideration, but this will probably take more patience to work out. I don’t see a big turnaround in the U.S. car market next year, and I don’t feel all that comfortable counting on a big turnaround in volume in China either. That leaves the shares in a sort of performance no man’s land. I do believe these shares will be at a higher level next year as investors start looking ahead to better auto volumes and gaining more confidence about the path forward for hybrid and electric programs.

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BorgWarner Bumping Along The Bottom In Search Of A Spark

More Clarity On Honeywell's Spinoffs And A Boost To Guidance

There's an ongoing tug of war in the industrial sector between analysts and investors who believe the end is nigh and that the cycle is going to start showing real signs of slowing next year, and the people who actually run those companies who believe business conditions remain strong. While many short-cycle industrials have picked up a little momentum lately, longer-cycle Honeywell (HON) has remained a strong performer throughout, with the shares arguably replacing 3M (MMM) as the must-own in the space.

In relatively short order, Honeywell will become a smaller, more profitable, and faster growing company as it completes the spinoffs of Garrett Motion (GTX) and Resideo Technologies. Spinning these two businesses should, in turn, lead to higher multiples for Honeywell as it will improve the company's margins, returns, and growth prospects. As all of that is going on, Honeywell continues to enjoy healthy demand across many of its businesses, with certain categories (aerospace, UOP, and automation in particular) looking like they have more to give. I've been a steady fan of Honeywell for a while, but given where the shares now sit in terms of valuation, I can't be quite as enthusiastic as before.

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More Clarity On Honeywell's Spinoffs And A Boost To Guidance