Tenneco Looking Almost Too Good Lately

A healthy skepticism, bordering on paranoia, is a good asset for investors to have. I liked Tenneco (NYSE:TEN) earlier this year on the prospects for content gains to drive growth above industry build rates and for investors to come around to the realization that growing light vehicle electrification isn't going to mean the end of internal combustion engines (at least not in 10 to 20 years). That said, I was surprised to see the shares climb more than 25% from that last article, as many auto/truck component companies have enjoyed a strong rally since the summer.

My skeptic spidey-sense is still tingling a little, though, because the shares still look undervalued. Strong demand for Tenneco-containing vehicles like the Ford (NYSE:F) Super Duty and F150 and General Motors' (NYSE:GM) Silverado, Sierra, and Escalade, and surprising resilience with Volkswagen's (OTCPK:VLKAY) Jetta platform are all positives, as is the margin leverage. Still, with my models now pointing to a fair value closer to $60, I'm a little concerned that I'm overlooking something. On the other hand, for those in the "don't worry, be happy" camp, business continues to develop nicely here, as the company logs beat-and-raise quarters, benefits from numerous model launches, and still looks like it has more to offer in terms of upside.

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Tenneco Looking Almost Too Good Lately

Allison Transmission Grinding Through A Rough Patch

The North American commercial truck market is still in pretty rough shape. While August vehicle orders showed sequential growth for both Class 8 trucks (up 37%) and Class 5-7 trucks (up 10%), both were down on a year-over-year basis (down 29% and down 5%, respectively). For Class 8 trucks, that's a year and a half of consecutive Y-O-Y declines in the monthly numbers, while Class 5-7 trucks have seen negative annual comps in three of the last four months.

That's a tough backdrop for Allison Transmission (NYSE:ALSN), the leading manufacturer of automatic transmissions for heavy-duty vehicles, but Wall Street has minded too much. While the shares are down a bit over the past year, they are up almost 20% from my last article, just a little below Cummins (NYSE:CMI) and Twin Disc (NASDAQ:TWIN), though the latter has been much more volatile. Investors seem to be encouraged by Allison's ability to retain strong share and good margins through this downturn, as well as the prospects for increased share on product roll-outs by customers like Navistar (NYSE:NAV) and PACCAR (NASDAQ:PCAR).

I still like Allison. It's not tremendously undervalued relative to the operating and macro risks, but it is priced for double-digit returns. More to the point, management seems to be following a sensible plan and one that I think can add share in important under-penetrated markets like metro Class 8 and international over time.

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Allison Transmission Grinding Through A Rough Patch

Seeking Alpha: Allison Transmission Hits Pause

As I have written in prior pieces, stocks like Allison Transmission (NYSE:ALSN), Cummins (NYSE:CMI), and BorgWarner (NYSE:BWA) get more interesting to me during those periods where investors start worrying about the near-term growth environment. All of these companies are, at least in my opinion, proven winners in the vehicle components space by virtue of a long-term focus on innovation and responsible year-to-year management of the business.

It would look as though Allison is heading into one of those pauses. The shares are up about 7% since my last piece, putting them in the same "meh" performance group as Cummins, BorgWarner, and Tenneco (NYSE:TEN), and management's guidance back in February for the full year was not inspiring, as revenue may decline this year. While there is certainly risk in buying these shares ahead of earnings (due in about two weeks), I think Allison still has attractive long-term growth potential and a price at or below the low $30's should be a good opportunity for long-term investors.

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Allison Transmission Hits Pause

Seeking Alpha: Allison Transmission Still Looking At A Multiyear Sales Effort Outside The U.S.

Orders continue to roll in pretty nicely for large commercial trucks, but major suppliers like Cummins (NYSE:CMI), Tenneco (NYSE:TEN), and Allison (NYSE:ALSN) haven't really been showing it in their share prices. Whether it is concerns about weak conditions in Latin America or valuations that got a little overheated earlier in the year, these shares haven't done much since I last wrote about Allison in March.

I thought back in March that valuation might be getting a little stretched, but with this stretch of relative underperformance, I'm getting more positive on Allison. The company will likely see some headwinds created by Ford (NYSE:F) and Volvo (OTCPK:VOLVY), but I like the company's opportunity to leverage its new TC-10 transmission into greater metro Class 8 share. Longer term, the key question remains whether or not the company can coax companies in Europe, Latin America, and Asia to adopt automatic transmissions despite the greater success. I think the process will take some time, but in the meantime Allison offers attractive margins and cash flow leverage, though the valuation is still not an obvious "gimme".

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Allison Transmission Still Looking At A Multiyear Sales Effort Outside The U.S.

Seeking Alpha: Tata Motors Riding JLR Until The Wheels Fall Off

For India's Tata Motors (TTM), it's both the best of times and the worst of times. The company's JLR business (Jaguar and Land Rover) has never been stronger, and the company continues to gain share in key growth markets like China. On the other hand, the company's domestic passenger vehicle business is fading into irrelevance, and competition is picking up in the commercial vehicle space. Tata doesn't appear to have a demanding valuation today, particularly if the domestic business can turn around, but investors need to be prepared for above-average volatility if they venture here.

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Tata Motors Riding JLR Until The Wheels Fall Off

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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http://www.investopedia.com/stock-analysis/090313/tata-motors-tale-two-businesses-ttm-f-cmi-bamxy.aspx

Investopedia: Allison Transmission - Great Share, But A Lot Of Debt And Cylicality

There are a lot of things that make Allison Transmission (NYSE:ALSN) an interesting company. A long-time pioneer in fully automatic transmissions, the company estimates that it sold 62% of all medium-to-heavy duty fully automatic commercial vehicle transmissions globally in 2011. While the company stays well clear of the passenger vehicle market, it's not a typical commercial vehicle supplier either, as the company does not participate in the Class 8 "line-haul" market (intercity trucks). While the company has uncommonly good margins and ample opportunities for growth, investors need to consider the sizable private equity ownership stakes and the large debt of this company.

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http://www.investopedia.com/stock-analysis/2013/Allison-Transmission---Great-Share-But-A-Lot-Of-Debt-And-Cyclicality-ALSN-ETN-F-CAT0116.aspx

Investopedia: Dana Looks Like A Name To Know In Parts

These are not easy times to be in the business of supplying parts and components for the passenger vehicle or commercial vehicle markets. Although U.S. auto sales have been quite good of late, business has slowed in Europe and many emerging markets, while numbers and management guidance from a host of truck, agriculture and mining OEMs has pointed to slowing trends as well.

Against that backdrop, I still think it is worthwhile for investors to take a closer look at Dana Holdings (NYSE:DAN). Numbers have come down a bit, and there are definitely risks in end-user demand for 2013, but this company's diversification across geographies, end markets, technologies and customers makes it a differentiated parts and components company. Coupled with a valuation that does not seem demanding, the stock is likewise interesting at these levels.

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http://www.investopedia.com/stock-analysis/2012/Dana-Looks-Like-A-Name-To-Know-In-Parts-DAN-AXL-MTOR-F0928.aspx

Investopedia: Washed Out Expectations May Help Maxwell From Here

The combination of overheated expectations and market weakness in Europe and Asia has done a real number on energy technology names ranging from wind power to solar to batteries. With declining revenue momentum in ultracapacitors, lower overall revenue guidance and worries about both emerging competition and sluggish end markets, Maxwell Technologies (Nasdaq:MXWL) has been no exception - dropping almost 50% over the last year.

I'm starting to wonder, though, if this isn't a good time to start reconsidering this name. I think investors have been forced towards much more rational market and revenue expectations, and if anything the market may now be undervaluing the company's long-term potential. While this remains a high-risk name with much to prove, sometimes emerging tech stories work better after a lot of the wide-eyed optimism has been washed out of the stock.

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Investopedia: Bull Vs. Bear - Major Automakers Face A Tough Future

Question: Are automakers a smart investment right now?

Bear's Response
The auto industry has certainly enjoyed a meaningful recovery from the worst of The Great Recession, when both General Motors and Chrysler declared bankruptcy and Ford (NYSE:F) came under serious stress. It wasn't just an American phenomenon either - even mighty automakers such as Toyota (NYSE:TM), Nissan (OTC:NSANY) and Honda (NYSE:HMC) saw major declines in sales and profitability, and a host of European carmakers saw substantial stress.

While auto sales for the major automakers may be better than its lowest levels, that doesn't mean that major automakers represent great investments today. Not only are these companies facing a challenging demand environment, but production costs are increasing and this industry has a decidedly mediocre history of financial performance.

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http://stocks.investopedia.com/stock-analysis/2012/Bull-Vs.-Bear-Major-Automakers-Face-A-Tough-Future--F-TM-NSANY-HMC0709.aspx

Investopedia: Harman Looks To Carry A Tune

Like many auto components suppliers, Harman (NYSE:HAR) is seeing sales pick up as car sales rebound in the developed world and grow rapidly in emerging markets. The question for Harman investors, though, is whether the company can continue to convince OEMs to stick with their systems in lieu of internal development or partnerships with smart device manufacturers.

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http://stocks.investopedia.com/stock-analysis/2012/Harman-Looks-To-Carry-A-Tune-HAR-TTM-SNE-F-0502.aspx

Investopedia: Could BorgWarner's High-Quality Miss Be An Opportunity?

Not all misses are created equal, and a miss that is based largely on taxes and "other income" can be an opportunity for investors to pick up shares a little cheaper than otherwise. BorgWarner (NYSE:BWA) continues to offer a compelling story in the auto parts sector - not only as more manufacturers outsource parts, but as fuel efficiency and emissions become even more important.

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http://stocks.investopedia.com/stock-analysis/2012/Could-BorgWarners-High-Quality-Miss-Be-An-Opportunity-BWA-HON-F-NSANY0501.aspx

Investopedia: 2011 In Review - Industrials Show Some Rust

In a market where it is hard to find a lot of notable winners, industrials had a fairly difficult 2011. Although real-time results have stayed pretty strong, more and more companies have warned the Street that the easy times are over and that growth rates are going to start normalizing to more modest numbers. Making things worse, Europe is gasping and wheezing as its largest banks struggle with their capital and growth in emerging markets seems to be slowing.

A Few Pockets of Strength  
There weren't a lot of strong stories this year, but there were a few and a lot of them were in the aerospace and defense sector. Boeing (NYSE:BA), for instance, has risen almost 10 and 12%  this year, as commercial shipments are finally picking up with the introduction of new aircraft. Lockheed Martin (NYSE:LMT) has likewise delivered a positive year, despite fears of large government spending cutbacks. Goodrich (NYSE:GR) far and away takes the top prize, though, as its impending buyout by United Technologies (NYSE:UTX) has driven the stock to over 40% returns this year. (For related reading, see Understanding Leveraged Buyouts.)

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http://stocks.investopedia.com/stock-analysis/2011/2011-In-Review---Industrials-Show-Some-Rust-BA-BWA-F-HON-ETN1222.aspx

Investopedia: Navistar Gets More Than The Benefit Of The Doubt

Navistar (NYSE:NAV) has had some real problems with its still-new EGR engine platform and the company's financial performance has likewise lagged many truck and engine peers like PACCAR (Nasdaq:PCAR), Volvo (Nasdaq:VOLVY. PK), Cummins (NYSE:CMI) and MAN. Oddly enough, that does not seem to really trouble investors. While Navistar shares have indeed been quite weak this year, it hasn't been any worse than Paccar, Volvo and MAN. The decline in Navistar share value has created a potential for significant gains if management can drive better performance - but oh what an "if" that seems to be.

Little To Get Hearts Racing In The Third Quarter  
It would seem like the best thing about Navistar's third quarter is that it basically met top line estimates. Revenue growth of 10% just does not seem that exciting; revenue in the engine and parts business looked good (up 20% and 23%, respectively), but truck revenue was up just 6%. Now it's fair to note that these are difficult comps because the defense business muddies the waters, but it just doesn't seem that Navistar has the same momentum in commercial trucks as its rivals. Couple that with management decisions a while ago to end relationships with Cummins and Ford (NYSE:F), and there is certainly something here for management to answer for to shareholders.


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http://stocks.investopedia.com/stock-analysis/2011/Navistar-Gets-More-Than-The-Benefit-Of-The-Doubt-NAV-PCAR-CMI-F-CAT-OSK-LMT0908.aspx

Investopedia: BorgWarner Is In A Sweet Spot

Better gas mileage and lower emissions is winning combination in the automobile industry these days, and BorgWarner (NYSE:BWA) is one of the companies that makes it happen. Moreover, as more manufacturers and customers look into the potential of turbocharged diesel passenger vehicles, this is a story that could have legs beyond today's car market. BorgWarner isn't the cheapest stock out there, but in an increasingly growth-challenged market, it stands out in many respects. 

Building Momentum in the Second Quarter  
BorgWarner reported strong results for the second quarter, as revenue rose nearly 28% on a GAAP basis and surpassed the average analyst estimate (and came very close to the top of the range). Organic growth was a still-solid 15%. Engine components are the majority of the business at BorgWarner and sales rose 28%. Sales of drivetrain products rose a very similar 29%. Those numbers are quite solid in their own right, but even more so considering that global vehicle production fell about 2% in the period. 


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http://stocks.investopedia.com/stock-analysis/2011/BorgWarner-In-A-Sweet-Spot-BWA-F-HON-CMI-TTM-TEN-JCI0805.aspx

Investopedia: Things Should Get Better For Alcoa

Aluminum may not get the same highfalutin title as copper ("Dr. Copper"), but it is nevertheless a resource with a price that is highly sensitive to economic conditions. With the economy starting to stumble and stagger during the past quarter, perhaps it is no surprise that the stock of aluminum giant Alcoa (NYSE:AA) has gone nowhere fast. Still, Alcoa's core markets are holding up well, and patient investors may yet see this investment work out. 


A Mixed Bag in the Second Quarter
As seems to be so common these days, quarterly results here were a mixed bag. Alcoa did alright on the top line, with revenue up 11% sequentially on 6% expansion in pricing. Packaging, building and transportation markets were up by double-digit percentages, while growth in industrial, aerospace, turbine and auto demand was more modest.

Margins saw some pressure, though, as currency, electricity, oil and other material costs pressured results. Still, adjusted EBITDA looked strong, and reported income from continuing operations was still positive on a sequential basis. (For related reading, see Using Base Metals As An Economic Indicator.)


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http://stocks.investopedia.com/stock-analysis/2011/Things-Should-Get-Better-For-Alcoa-AA-BA-RIO-BHP-F0713.aspx

Investopedia: Industrial Softness Spreading Out

There have been some concerning signs recently that the economic recovery is petering out. Railroad traffic is softening and industrial supply giant Grainger (NYSE:GWW) has been reporting decelerating growth in its U.S. orders. With recent data points from leading mini-mills and a major European industrial company, it looks as though the second quarter saw a definite slowdown, and growth for the rest of the year is up in the air. 

Spotty Demand for Steel? 

Last week saw earnings preannouncements from both Nucor (NYSE:NUE) and Steel Dynamics (Nasdaq:STLD). Nucor was relatively upbeat in the text of its release, talking about how prices for finished steel have caught up with rising material costs. That said, things have not improved enough - the midpoint of Nucor's guidance was about 10 cents (or 12%) lower than the prior average analyst estimate.

The report from Steel Dynamics was less rosy (and more detailed). Steel Dynamics has seen lower recycling profits as the cost of scrap copper and steel have risen. Worse yet, steel orders were down 25% in April before starting to improve in May.

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http://stocks.investopedia.com/stock-analysis/2011/Industrial-Softness-Spreading-Out-NUE-STLD-GWW-F-LECO-ITW-PX0621.aspx

Investopedia: Can China Yuchai Rev Up Your Portfolio?

Sometimes it seems that investing in China is all about finding the "Chinese version" of some successful Western company. Gome is the "Chinese Best Buy (NYSE:BBY)," Lenovo is the "Chinese Dell (Nasdaq:DELL)," Zhongpin (Nasdaq:HOGS) is the "Chinese Smithfield (NYSE:SFD)," etc. 
With that in mind, then, is China Yuchai (NYSE:CYD) the "Chinese version" of Cummins (NYSE:CMI), the successful Indiana-based diesel engine manufacturer? More to the point, as the risks of investing in Chinese stocks become more widely-known, is this a name investors can trust as a play on the ongoing growth of China's industrial and transportation sectors? (For more, see Investing In China.)

A Solid End to the Year 

China Yuchai reported that fourth quarter revenue rose almost 24% to about $607 million, largely on the back of a nearly 14% increase in unit sales. While pricing was strong in general, the company also benefited from an going migration towards heavy-duty engines making up a larger portion of the sales mix.

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http://stocks.investopedia.com/stock-analysis/2011/Can-China-Yuchai-Rev-Up-Your-Portfolio--CYD-CMI-CAT-F-GM-HMC0401.aspx

Investopedia: Alcoa: It's All About China Now

In a market that still seems obsessed with finding "China plays", Alcoa (NYSE:AA) might not be the first name that comes to mind. The reality, though, is that China largely calls the tune these days and this giant aluminum company has little choice but to dance to it as best it can.

The Quarter That Was
Alcoa had a respectable fourth-quarter performance. Sales growth was not exactly robust, as the company produced sequential growth of 7% and annual growth of 4%, but it was good enough to more or less meet the average estimate. Within the numbers there was a relatively normal level of choppiness - Engineered Solutions revenue rose by 11%, while Alumina and Flat-Rolled were laggards with flat revenue and 1% growth, respectively.

To a certain extent, that sales profile worked in the company's favor. Although it is certainly the case that sales performance (both absolute and relative) impacts margins, the company saw the best top-line growth in its highest-margin segments. That helped fuel overall after-tax operating income growth of 14% on a sequential basis and 65% on a year-over-year basis, with Primary Metals leading on both an absolute and relative basis. (For more, see Zooming In On Operating Income.)

Trying to put that into a little more context, the profitability of Alcoa is still a good news / bad news proposition. Looking back through Alcoa's history and trying to craft a "normalized" run-rate, it looks like Alcoa is about 10% below normal in terms of flat-rolled production and maybe 20% below normal in engineered products. Here is why that really matters - the incremental costs involved in those two production profiles are quite small and Alcoa could probably double its profitability in each segment at a "normal" run rate. In other words, there is major positive profit leverage if Alcoa can get back to normal (without a major collapse in prices). (For more, see Alcoa Predicts Aluminum Boom.)

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http://stocks.investopedia.com/stock-analysis/2011/Alcoa-Its-All-About-China-Now-AA-ACH-VALE-FCX-BHP0112.aspx

Is Rockwell's Growth Automatic?

With companies in a wide range of industries coming out of recession-induced hibernation, major players in industrial automation and process controls are seeing strong recoveries. The latest in that line is Rockwell Automation (NYSE:ROK), which ended its fiscal year with very strong performance and reasonably encouraging guidance for the next 12 months. 

A Strong End to the Year
Rockwell reported overall revenue growth of 26% in its fiscal fourth quarter, and 7% sequential growth. Growth was relatively balanced across the two major segments - the architecture/software business saw 36% year-on-year growth and 4% sequential growth, while the control products and solutions segment posted 20% and 9% growth on an annual and sequential basis, respectively. Growth appeared to be broad-based across sectors, as food/beverage, pharmaceuticals and light machinery all did well and major automakers like Ford (NYSE:F) and General Motors resumed spending. 


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http://stocks.investopedia.com/stock-analysis/2010/Is-Rockwells-Growth-Automatic--ROK-ABB-EMR-SI-F-DHR-DOV1112.aspx