Having gained 14 percent since the start of the year, the U.S. stock markets are on a roll. Auto stocks have also been privy to this wonderful rally and have recorded impressive gains. However, there are still stocks such as Dana Holding Corporation (NYSE:DAN), TRW Automotive Holdings Corp. (NYSE:TRW), and Gentex Corporation (NASDAQ:GNTX) which offer excellent value. Here is a closer look:
Dana Holding Corporation (NYSE:DAN) supplies axles, drive shafts and transmissions to automakers, as well as a wide range of service parts. Although the company is based in Ohio, it has been expanding in emerging markets, especially in China and India where the bulk of automotive growth is taking place. Although Asia accounted for only 12.5 percent of its revenues in 2012, it set off the declines in South America and Europe while North America remained flat. Even though auto stocks have gone up substantially over the past year, this is one stock which has not yet participated in the rally. It is up merely 14 percent over the past 12 months, thanks to the 10 percent correction in the last month. However, the stock has strong fundamentals which is why most brokerage houses have ‘Hold’ or ‘Buy’ ratings on it. This dividend-paying stock is priced at a multiple of 11.6 to its earnings in the last 4 quarters. With a debt equity ratio of 0.49 and a price to book value ratio of 1.31, it is one of the most undervalued stocks in the sector.
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Michigan based TRW Automotive Holdings Corp. (NYSE:TRW) is another auto parts vendor which has seen lower prices lately. It has dropped 7 percent in the last 30 days, thus presenting compelling valuations which include a price earnings ratio of 7 while its debt equity ratio stays comfortably below 0.5. Despite a strong balance sheet, the stock has hardly given any returns so far in the year as financial results have been largely flat. However, the company has been putting in resources in China, which presents untapped potential for U.S. suppliers. Its revenues in China jumped 32 percent in 2012 to $2.2 billion. This forms just 13 percent of TRW’s global sales but continued expansion in vehicle production volumes in China, and that too at rates higher than in the U.S., is likely to reward the company in coming years.
Growth is good back home
Gentex Corporation (NASDAQ:GNTX), a supplier of high tech mirrors and camera-based lighting-assist products is not really an underperformer. Its returns over the last 12 months have been negative but the stock has consistently moved up after tanking big time in July last year. In fact, in the last 6 months, it has shot up 24 percent on strong earnings. Despite the late rally, there is strong evidence of enough value left in this stock. It is currently priced at 17.6 times its past earnings and promises a dividend yield of 2.7 percent. A relatively high price structure of its products mean that applications in growth markets such as China will be limited as customers are price conscious in these markets. However, its traditional markets, especially North America, are recovering very well as highlighted by a 22 percent increase in auto-dimming mirror unit shipments in the region last year.
Overall, the prospects for auto stocks look good, especially for companies which have their operations rooted in the U.S. or in emerging markets such as China. The downside is that these undervalued stocks can take long before the value is unlocked. Investors can still keep an eye on monthly sales numbers to get an understanding how these stocks will likely fare after announcing quarterly results.