This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Want a Ride? TRW Auto Set to Zoom

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( MagicDiligence) -- It comes as no great surprise that investors would be wary about investing into the automotive sector: 2008-09 are fresh in people's minds, during which American automakers General Motors (GM) and Chrysler filed for bankruptcy, and Ford (F) barely survived. Auto suppliers such as Delphi and Lear (LEA) trudged into bankruptcy court. To put it simply, the industry was decimated by the "Great Recession."

Even in the best of times, this is a difficult business. Auto sales are highly correlated to the general economic cycle. Capital costs for production equipment are high. Labor disputes and rising commodity costs are ever-present dangers. Consumer tastes can change quickly, wreaking havoc on model design plans that take years to come to fruition. Tight credit markets make it difficult for many buyers (consumers and businesses) to finance new vehicle purchases. And, historically, both automakers and suppliers have carried poor balance sheets with large debt burdens, "living on the edge" in a very unpredictable industry.

Given this, we need a very attractive candidate in order to gain exposure to this sector. Fortunately, Magic Formula Investing has dug up one such stock in TRW Automotive (TRW).

TRW is one of the world's largest auto-industry suppliers. The firm's primary focus is on safety-related systems present in modern vehicles. These run the gamut from electronic steering to anti-lock brake systems to air bags to lane assist systems and everything in between. TRW supplies most of the major automakers. Its top four customers are Volkswagen Group (20% of sales), Ford (16%), Fiat/Chrysler (14%), and General Motors (12%).

I like TRW for several reasons. First and foremost, the firm has an attractive set of growth opportunities. Over 80% of sales come from developed economies in North America and Europe. These two geographies have suffered from 30-year-low vehicle volumes in the 2008 to 2009 period. While 2010 and now 2011 have been an improvement, volumes are still some of the lowest in the past 40 years. To illustrate this, consider just U.S. sales. From 1968-2008, average new vehicle sales in the U.S. were 14.3 million units. More recently, from 1998 to 2008, the average was 16.8 million. In contrast, 2009 sales were 10.6 million and 2010 11.8 million. Even 2011, a rebound year, is only showing volumes around 13 million -- about 23% below the 1998 to 2008 average.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
TRW $105.46 -0.07%
AAPL $110.32 -0.89%
FB $92.45 -0.38%
GOOG $639.40 -0.94%
TSLA $234.09 -3.10%


Chart of I:DJI
DOW 16,868.06 +77.87 0.46%
S&P 500 1,990.38 +10.46 0.53%
NASDAQ 4,772.20 +23.8390 0.50%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs