Sector Snap: Auto Suppliers Upgraded At BofA

NEW YORK (AP) — A Bank of America Merrill Lynch analyst upgraded several auto suppliers Monday, citing their strong balance sheets and ability to diversify to whether a downturn in the auto industry.

In a note to clients, analyst John Murphy said that automakers are beginning to ramp up production to meet sales demand generated by the Cash for Clunkers program, and are likely to pay "higher margins" for the security of working with a stable supplier.

"We continue to believe technology, strong balance sheets and customer diversification will allow certain companies to outperform," Murphy wrote. "In our view, these three characteristics of a successful supplier are particularly relevant considering the distress in the overall supply base."

He upgraded BorgWarner Inc. to "Buy" from "Neutral," stating that the Auburn Hills, Mich.-based company is the strongest supplier in the industry due to its cash position and debt reduction in the second quarter. Murphy raised his share price target to $40 from $35. He also raised earnings estimates for 2010 and 2011.

Shares of BorgWarner fell 76 cents, or 2.5 percent, to $29.51 in midday trading. The decline mirrored a downturn in the broader market.