Report Card: Gary Lapidus

Gary Lapidus Goldman Sachs
	Report Card 2* Overall rank 2* Rank by institutions 8* 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.
2nd Place Automobiles

Bio

B.S. in chemical engineering, University of Massachusetts; M.S. in chemical engineering, California Institute of Technology; M.B.A., Harvard Business School. Lapidus is Goldman Sachs' senior analyst covering the auto and auto-parts industries. Prior to that he was the auto analyst at Sanford C. Bernstein.

Industry Outlook and Style

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Lapidus describes his outlook as "more optimistic than most on the near-term demand side of the ledger." Indeed, his near-term view is slightly brighter than that of our other two winners.

Lapidus predicts that light-vehicle sales will come in at around 16 million, a bit better than consensus. Accordingly, he believes the Street's earnings estimates are probably too low. "Having said that, we think the market largely discounts that outcome, so we don't see tremendous upside in most of the names in the group," he adds as a qualifier.

In the medium to long term, Lapidus is very concerned about earnings for the Big Three "because in our view the sector has lived off extraordinary light-truck profit margins because of favorable supply/demand in those segments." But the dominance enjoyed by GM (GM Quote - Cramer on GM - Stock Picks), Ford (F Quote - Cramer on F - Stock Picks) and DaimlerChrysler (DCX Quote - Cramer on DCX - Stock Picks) in this segment is waning, he says, and they will see eroding profit margins in the face of increased competition.

For investors in the auto sector, the Goldman analyst likes Ford over the long term (24 to 36 months) but sees a near-term trading opportunity in General Motors. He says Ford "has the opportunity to offset the margin pressure in light trucks with volume and margin expansion in their premiere automotive group." GM, Lapidus says, is "strictly a valuation call and probably a bit of a call on near-term mix improvement in GM's light-truck business that they're not getting credit for in the marketplace."

But, like the other two ranked analysts from our survey, Lapidus prefers the stocks of auto-parts companies. His favorite name here is Lear(LEA Quote - Cramer on LEA - Stock Picks), which he terms an undervalued leverage play. "For the same reason that people would have wanted to avoid it when the fears were of an imminent trough [in demand], people should like it as fears of a trough start to recede." (Goldman Sachs has had investment banking relationships with all of the companies mentioned in this story.)

Stock Pick

Favorite stock for next 12 months: Lear
Comment:
"It's the most undervalued stock in the sector based on its return on capital, and it's a leveraged play to a recovery in the demand cycle. It's got a lot of financial leverage, which hurts you on the negative part of the cycle, but helps you in the recovery. We have a price target on the stock of $45."


Rate Their Stock Picks:

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