BorgWarner Looks Well-Positioned And Undervalued

BorgWarner (BWA) has proved to be another interesting company and stock to watch in the auto/commercial vehicle components sector. Although BorgWarner is uncommonly well-positioned to benefit from both stricter standards for internal combustion engines (or “ICE”) and the conversion toward hybrid and electric vehicles (or EVs), this often seems to be a stock where the market is looking for an excuse to not like it.

I thought BorgWarner was a little pricey back in October of 2017, and I don’t feel like I’ve missed out on much – the shares are down a bit over that period, while other auto parts companies like Lear (LEA) and Magna (MGA) have produced double-digit returns.

With healthy content growth pushing revenue growth well ahead of underlying build rates and reasonably good wins for upcoming hybrid/EV business, I’m more interested in the valuation and the stock now. I do have some worries about more challenging comps later in the year, and BorgWarner doesn’t have as much leverage to future hybrid/EV adoption as some, but I think this is a stock worth considering today.

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BorgWarner Looks Well-Positioned And Undervalued

Investopedia: BorgWarner Still In A Long-Term Growth Lane

It has been nearly a year since I last wrote on BorgWarner (NYSE:BWA), but in the intervening months a lot of my predictions seemed to come true. In particular, the stock faltered a couple of times on weakness in light vehicle production numbers and investors had the opportunity to buy shares of this high-quality auto components company in the $60s.

Since the late 2012 swoon, though, these shares have rebounded by a third even though European vehicle production remains weak. While liking these shares in the $60s was easy, buying in in the $80s takes a little more faith in an aggressive long-term growth story that isn't often seen in the auto components sector.

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http://www.investopedia.com/stock-analysis/051313/borgwarner-still-longterm-growth-lane-bwa-hon-dlph-etn-lea-towr-cmi-itw-axl-mtor.aspx

Investopedia: Johnson Controls Has A Lot Of Improving Left To Do

One of the investment and corporate finance topics that has been getting more airtime recently is the notion of “peak margins” - the idea that many (if not most) companies have squeezed all they can from mass firings, IT investments, and other sorts of cost “rationalizations”. If this theory proves accurate, stocks could well be meaningfully overpriced on the basis of margin expansion expectations that just won't materialize.

That could be a relevant topic in the case of Johnson Controls (NYSE:JCI), as sell-side analysts continue to project margin improvements well ahead of historical experience. Certainly there are reasons to think that this company could be near a point of margin inflection – the building efficiency business should be close to turning and the company may be ready to start reaping better returns from batteries as well. That said, betting on a significant transformation at a company with a record of underwhelming performance could be a risky bet.

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http://www.investopedia.com/stock-analysis/050713/johnson-controls-has-lot-improving-left-do-jci-itw-lea-utx-si.aspx

Seeking Alpha: Faith In Johnson Controls May Be Running Ahead Of Facts

While I understand that Wall Street is a discounting mechanism that looks forward more often than backward, I have a hard time reconciling the confidence that investors have shown in Johnson Controls (JCI) over the past three months with the likely trajectory of performance.

Johnson Controls said many of the right things at its recent analyst day, addressing issues like margin challenges in the automotive and building systems businesses and pointing to a promising future in batteries, but it seems like analysts are much too willing to reward the company with unprecedented operating improvements. A slight beat for the fiscal first quarter is certainly better than another miss, but back-loaded guidance and iffy auto margins leave me hanging on to some skepticism.

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Faith In Johnson Controls May Be Running Ahead Of Facts