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3 Post-Bankruptcy Auto Supplier Stocks for 2011

(Auto-supplier bankruptcy story updated with end-of-the-year figures, Fitch Ratings forecasts and GM chart.)

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NEW YORK ( TheStreet) -- Over the last two years, the strongest auto suppliers have managed to claw their way out of the auto industry meltdown to live another day in 2011.

According to the Original Equipment Suppliers Association (OESA), the number of auto suppliers who have filed for bankruptcy has shrunk to five in 2010 from 62 in 2009, as major customers such as General Motors (GM - Get Report) and Chrysler resurfaced from bankruptcy protection. "We continue to see an environment where the strong suppliers will get stronger, while weak firms will eventually exit the industry or be acquired," Morningstar analyst David Whiston said in a note. "There is more hope of higher production volumes than the last time we looked at the sector."

According to OESA, auto suppliers comprise the largest manufacturing sector in the U.S.

Results of a November survey on auto supplier sentiment by OESA indicate that suppliers are becoming more optimistic overall about the business environment. Readings rose to 61 in November from 52 in September as responses shifted significantly to "unchanged" and "somewhat more optimistic." Noteworthy was that the smaller companies saw a greater increase in optimism than the larger ones.

Market research firm IBISWorld says suppliers focusing on auto climate control, electronics and seating may do particularly well 2011 due to increasing demand for luxury interiors, entertainment and navigation systems, and electric-powered vehicles. Meanwhile, KeyBanc Capital Markets believes that auto companies at the Detroit Auto Show on Jan. 11 and 12 will likely tell investors that production in the fourth quarter of 2010 exceeded both the expectations of the companies themselves and those of equity analysts.

UBS analyst Colin Langan says to expect more supplier merger and acquisition deals over the next three years as the economy continues to recover, especially given that they have "plenty of dry powder." Currently their cash levels are at nearly 20% proportional to total, industry-wide market capitalization, says Langan.

At least eight global auto industry deals were completed in the last 12 months as suppliers sought to buy growth at the bottom of the economic cycle; recent deals went for less than 10% of sales, Langan noted.

Fitch Ratings reports that that though auto demand in 2011 should be greater than that of 2010, sales growth will be uneven across regions, with demand growth in the U.S. and developing markets offsetting continued declines in Europe. Fitch Ratings says that even in the U.S., light vehicle sales in 2011 could remain "well below" pre-recession levels.

Fitch projects that U.S. light vehicle sales will reach 12.5 million units in 2011, up 9% from the 11.5 million seasonallybadjusted annual sales rate seen for the year-to-date through Nov. 30, 2010, but doesn't expect light vehicle sales volume to breach a 15-million-unit level for at least two years, which would still be roughly 2 million units below the peak level seen before the recession.

As the competitive nature of the auto industry world heats up again and rivalries grow fiercer, we take a look at how three auto suppliers -- all of whom have been symbolic of the auto industry rebound story -- will cope in 2011. Two of them have emerged fresh from bankruptcy, while the third -- while managing to skirt bankruptcy, has been rising impressively on GM's comeback, but may face headwinds in 2011.

Read on for a 2011 performance preview of three auto suppliers....
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VLKAY $31.92 0.00%
BWA $35.92 0.00%
F $13.56 0.00%
GM $31.80 0.00%
JCI $41.40 0.00%


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