Report Card: Steve Girsky

Steve Girsky Morgan Stanley Dean Witter
	Report Card 1* Overall rank 1* Rank by institutions 5* Rank by stock picking Makes money for me Saves me from disaster Makes me think Tells the truth Meaningful service, not overkill Well-connected *Out of 10. Best star rating is 3 stars. Click here for our methodology.
1st Place Automobiles

Bio

B.S., in mathematics, University of California; M.B.A., Harvard Business School. Girsky has been following the automotive and tire industries for 14 years. Prior to joining Morgan Stanley Dean Witter, he headed PaineWebber's automotive group.

Industry Outlook and Style

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Although Girsky expects demand for cars and trucks to weaken, his bearish stance on auto stocks is due more to market share issues. The Big Three's market share is under pressure, he says, as "the whole light-truck mix is coming unraveled and price pressures remain very intense. So while I think sales may surprise people to the upside, I think there's still a lot of profit risk here."

In recent years, light trucks have been key to the profitability of the Big Three, who have faced little competition in the segment from foreign automakers. But now the growth rate in light trucks is slowing, while production continues to grow; a 20% increase in capacity is coming on, according to Girsky. He adds that he's beginning to see increased discounting and resulting margin compression in the light truck segment.

An added threat is emerging from overseas as Honda (HMC Quote) in two years has gained significant market share in the minivan segment, while Toyota (TM Quote) is gaining share in full-size pickup trucks and BMW is becoming the fastest growing luxury sport utility vehicle (SUV) company.

The Morgan Stanley analyst says that if he had to own an auto stock, it would be Ford(F Quote). "Basically, it's the most profitable auto company in North America. You've got a lot of restructuring in [the company's European divisions] that's gaining traction, you have one of the strongest balance sheets in the business, big dividend yield, and [the company is] buying back a lot of stock." In addition, Girsky notes, Ford has the world's largest luxury vehicle business -- a segment that typically holds up better when sales weaken.

But in the current market, the analyst thinks that the less-cyclical suppliers are a better place to be than the auto companies. While investors have to worry about demand and pricing for both segments, he explains, auto suppliers have been somewhat immune to the problems generated by the automakers' insufficiently broad business mix (essentially, U.S. carmakers have become too dependent on the light-truck lines). "A seat is a seat, whether it goes in a car or a truck. So suppliers never benefited from the move to light trucks, and they won't suffer as much from the swing backward." The group also has less exposure on the market share front, he says, as many of the suppliers "have a reasonable share of the transplants -- the foreign manufacturers." His top pick for the group is Lear(LEA Quote), which he rates a strong buy. He notes that it is among the cheapest companies in the sector.

For investors willing to take on more risk, Girsky likes Delphi Automotive Systems(DPH Quote) and Visteon(VC Quote), the auto-parts spinoffs of GM and Ford, respectively. "To me they're good companies with great potential, but they have increased risk because they're very exposed to one customer." (Morgan Stanley Dean Witter has had investment banking relationships with all the companies named in this story.)

Stock Pick

Favorite stock for next 12 months: Lear
Comment:
"They've got a big backlog of new business, so they're continuing to gain share of the interiors market. They're a very low-fixed-cost-structure company, so the earnings volatility is not as great here as it is at other suppliers. In addition, they generate reasonable cash flow -- the market would have to go down a lot for Lear's cash flow to turn negative. Our price target is $50."


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Which stock do you like best? Girsky and Lapidus: Lear Corp. Bradley: Johnson Controls