Valeo's Outperformance Relative To Underlying Volume May Be The Start Of The Turn

I can understand why sell-side analysts would see light at the end of the tunnel at Valeo (OTCPK:VLEEY) (FR.PA) and assume it’s an oncoming train. That’s what happens when you miss guidance for two and a half years, offer vague and unconvincing explanations of those misses, and generally make any bulls look foolish. And yet, the markets tend to have short memories if and when companies turn around their performances, so maybe, finally, my bullish thesis on Valeo doesn’t feel so foolish.

I’m not changing any of my core assumptions in any meaningful way, as there’s still a lot of “show me” to this story. Still, 5% revenue growth for a company with a strong hybrid/EV order book (if they can deliver…) and strong FCF growth (if they can deliver…) doesn’t seem out of line, and would support a meaningfully higher share price from here, even after a recent rally that has seen the stock outperform peers/rivals like BorgWarner (BWA), Continental (OTCPK:CTTAY), and Schaeffler (OTC:SFFLY).

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Valeo's Outperformance Relative To Underlying Volume May Be The Start Of The Turn

Seeking Alpha: Lost Credibility And Shifting Priorities Hammer BorgWarner

Wall Street shows no mercy when its favorites don't live up to their multiples, and BorgWarner (NYSE:BWA) is a case in point. This powertrain specialist has not only delivered a series of disappointing earnings and guidance reports, but the company has seen a sharp contraction in its backlog and its content share growth. Now concerns are building that BorgWarner's focus on internal combustion engine (or ICE) technologies are going to leave it outside of the industry's sweet spot as companies like Volkswagen (OTCPK:VLKAY) accelerate their development of hybrid and electric vehicles.

To me, a lot of this sounds like the familiar Wall Street whipsawing between "can do no wrong" and "can't do anything right" when analysts have to shift from justifying high relative valuations to explaining why those prior justifications are no longer relevant. I do think BorgWarner has some serious growth and credibility challenges to address in the short term, but I think ICE-powered passenger vehicles are going to be around for a while, and I wouldn't count out BorgWarner as a player on the electrical side.

These shares could be undervalued by 50% or more, but the company must return to reliable average-growth with improved free cash flow margins. I still like the long-term prospects for the company, but the stock may have a tougher go in the short term.

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Lost Credibility And Shifting Priorities Hammer BorgWarner

Investopedia: Tata Motors - A Tale Of Two Businesses

Tata Motors (NYSE:TTM) is arguably one of the best-known Indian companies, due in no small part to the fact that it is was among the first Indian companies to list on a U.S. exchange. What's more, analysts and investors have long been excited by the potential of selling cars and trucks to such a large and growing economy.

While that all sounds good, the year-to-year reality has been more challenging. Due in part to poor designs, questionable customer experiences, and inefficient infrastructure, Tata has had considerable challenges in its domestic passenger vehicle business, while the commercial vehicle business has struggled in the face of tougher economic conditions. That leaves the company even more dependent upon Jaguar Land Rover – a growing luxury brand with good exposure to China as well as recovering markets in North America and Europe. Many of the metrics for Tata Motors suggest undervaluation, but a long-term cash flow analysis suggests that investors may still be expecting more than this company can deliver for the long term.

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Investopedia: Harley-Davidson Already Priced For Improvement

It's worth asking how long it's going to take Harley-Davidson (NYSE:HOG) to return to former glories. Nothing has really dented the brand value or product quality of this well-loved brand, but easy credit in the early and mid-2000s spiked demand and sales for these expensive motorcycles. Although a focus on lean manufacturing ought to improve long-term margins and cash flow conversion, investors may be expecting more of this company than the numbers can deliver.

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Investopedia: Truck-Makers Hauling In Profits

Judging by the comments from one of Europe's largest truck-makers, the recovery in the market for big rigs still has a ways to go. Along with its earnings release on Monday, Germany's MAN SE (Nasdaq:MAGOY.PK) expressed a fair bit of confidence in the growth outlook for the truck market in 2011. While investors who showed up early to play the commercial truck revival have already done well, this latest news gives at least some hope that the rally is not running on empty just yet. 

Strength in Europe, Strength in Emerging Markets

Not only did MAN report a 22% jump in revenue from last year, but the company reversed a year-ago loss in profits of over $1 billion. Looking specifically at the commercial truck segment, revenue jumped 36% on a unit increase of nearly 53%. Encouragingly, orders in the truck business were up 68% and the company talked about strength in both the European market and developing markets like Brazil. (For more, see The Upside Of Trucking.)

If Europe is indeed strong, that is good news not only for MAN, but major players like Volvo (Nasdaq:VOLVY.PK) and Scania as well, to say nothing of larger vehicle companies like Volkswagen (Nasdaq:VLKAY.PK), Daimler and Fiat Industrial that all have business (or investment stakes) in the commercial truck sector. 

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