It’s not true for every company nor every sector, but evidence continues to mount that the recovery is underway, as short-cycle industrials like 3M (MMM) and Gates (GTES) have offered relatively positive recent updates and car volumes continue to exceed expectations. I liked Sensata Technologies (ST) back in May as a relatively rare opportunity to get into a quality sensor and control company leveraged to the auto, industrial, aerospace, and HVAC markets, and the shares have risen a respectable 24% since then – more or less matching the recovery in the wider industrial space, but underperforming auto suppliers.
With management providing a meaningful boost to third quarter expectations last week on stronger auto sales, I’m still surprised these shares trade as reasonably as they do. There are some risks from newer sensing technologies, as well as more companies turning their eye toward the sensor market, but Sensata has its own product development and market expansion efforts underway, sensor penetration continues to increase across its addressed markets, and the company is leveraged to opportunities like vehicle electrification. The shares don’t look exceptionally cheap on discounted cash flow, but relative to its margins and returns, the shares do still look more substantially undervalued.
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