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4 Undervalued Stocks in Clint Eastwood's Favorite Sector

NEW YORK ( Stockpickr) -- Clint Eastwood really stepped in it this time. The pull-no-punches octogenarian waded into a firestorm by seemingly endorsing the revival of the U.S. auto industry in a Super Bowl halftime commercial. Clearly, the government's rescue of GM (GM) and Chrysler -- along with a handful of auto parts suppliers -- can still cause quite an argument.

Yet with the controversy receding, investors can now focus on the important take away from that two-minute advertisement: Auto sales have bounced up off the lows, and should keep rising and rising into this middle of this decade. And while that would surely the prospects of Ford (F) and GM, there are a range of auto parts suppliers that are also selling on the cheap, and should also get a tangible lift from this rebounding industry.

To be sure, a debt-laden industry that is built to produce 16 million to 17 million units will hit deep financial distress if demand falls to 10 million. The auto makers and their suppliers saw share prices sink below $2 -- or in some instances wiped out completely in 2008 and early 2009. And though they've moved up sharply off of their lows, they remain quite inexpensive in the context of near-term profit results. The average stock in this table trades for around 9.5 times projected 2012 profits, and that average multiple falls to just 8.0 based on 2013 profit forecasts.

More important, the near-term valuations are the long-term trends. These auto parts suppliers have typically derived the large majority of their business from domestic auto makers. Yet foreign auto makers in Japan and Europe are starting to cut production in their countries and boost production here in the U.S. That opens the door for U.S.-based auto parts suppliers to expand their customer base.

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To be sure, it will be hard for this group to rally while investors anxiously watch the economic crisis unfurl in Europe. These auto parts suppliers have made major inroads into Europe which is a long-term positive, but creates a risk to near-term sales and profit forecasts.

Still, this industry is vastly healthier than it was a few years ago, as companies sport stronger balance sheets and lower operating costs. They're quite profitable right now, and as long as U.S. industry volumes keep rising and Europe avoids a deeper slowdown, the stage is set for stunningly-high profits by mid-decade.

So what are the best bargains in the sector? Here's a look at four undervalued auto parts suppliers.
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