NEW YORK (TheStreet) -- It was, to be sure, a tough operating environment for auto-supplier companies in 2009 -- but they're poised to benefit from a multiyear upwards trend in light vehicle sales worldwide in 2010. Higher volumes combined with cost-cutting should enhance profitability in the industry for the next couple of years, says Efraim Levy, an equity analyst at Standard & Poor's.

Indeed, Levy says that production at the auto-parts manufacturers could rise a rapid pace this year, as the industry has experienced unusually lean inventories combined with the expectation of 11.6 million new light vehicle sales in the U.S. alone -- up from 10.4 million new light vehicle sales the year before.

So which are the stock to watch to watch in the sector during the coming year? We recommend the following six....

BorgWarner

If there's one area where

BorgWarner

(BWA) - Get Report

has an edge over its peers, it's the complex components and systems know-how it has for vehicle power-train applications around the world.

BorgWarner is a Fortune 500 company with operations in 60 locations and 18 countries. Its biggest customers include VW/Audi, Ford, Toyota, Renault/Nissan, General Motors, Hyundai/Kia, Daimler, Chrysler, Fiat, BMW, Honda, John Deere, PSA, and MAN.

Even in the tough operating climate of 2009, BorgWarner managed to increase net income in the third quarter, compared with a net loss in the same quarter a year earlier. BorgWarner posted earnings of $0.15 per diluted share for the third quarter fiscal 2009, compared with a loss $1.12 per diluted share the same time last year.

BorgWarner attributes the income gain to the dual effect of operational efficiency improvements and higher sales. A leaner infrastructure allowed the company to bounce back from the last few quarters of difficult operating margins, according to Wall Street Strategies.

"Our earnings performance in the third quarter, which has lifted us to near break-even levels year-to-date on a recurring basis, is a direct result of resizing our business for profitability at these sales levels," Timothy Manganello, BorgWarner's chairman and CEO, said it a statement.

Wall Street Strategies' belief in the company has led analyst David Silver to reiterate his buy rating on BorgWarner stock with a $40 price target.

"I think the push towards fuel efficiency will help propel BorgWarner even higher with its turbochargers and other drivetrain products that help improve a car's fuel efficiency," Silver explains.

Wall Street Strategies cautions that, in the short term, there is a risk for a slight pullback in the stock, as it has appreciated more than 100% from its March 6 lows. That said, according to the firm, any pullbacks will represent an excellent opportunity to enter into the stock.

Gentex

Auto-safety and fire-protection is

Gentex's

(GNTX) - Get Report

motto.

That's why when it comes to rearview mirrors and automatic dimming technology to reduce rearview mirror glare, Gentex is among the best of its kind. It also sells mini-cameras that control high-beam usage and microphones for speech recognition and hands-free communication.

Furthermore, Gentex sells advanced smoke detectors and signaling devices for the commercial fire-protection industry.

In the third quarter fiscal 2009, Gentex's net income increased by 58% to $23.9 million, compared with $15.1 million in the year-ago period, primarily due to increased operating income, which rose by 42% in the third quarter to $33.1 million.

Gentex's improved operating income stemmed from its improved ability to leverage fixed overhead costs due to a 33% rise in sequential quarter-on-quarter net sales.

"We are pleased to report this good performance by Gentex in the third quarter," said Gentex chairman and CEO Fred Bauer. "The company continues to benefit from additional vehicle models offering our SmartBeam

an intelligent high-beam headlamp and camera display products, and we're optimistic that those products will continue to drive our future growth," said Bauer.

Efraim Levy, an equity analyst at Standard & Poor's, has a strong buy recommendation for Gentex stock, with a 12-month price target of $22. Levy expects the company's gross and operating margins to expand in 2010, driven by strengthening volume and a favorable shift in product mix, aided by cost-cutting initiatives and partly offset by price reductions.

Levy says the key drivers of the stock in 2010 are "its automatic dimming technologies, a healthy balance sheet and innovative rear view mirror technology."

Standard & Poor's estimates earnings of 43 cents for Gentex in fiscal 2009, down slightly from 2008's already depressed 44 cents. However, S&P expects earnings to recover significantly to 60 cents in fiscal 2010.

Levy says that Gentex has been able to increase its dividend every year since its initiation and believes the company will seek to maintain it. He adds that Gentex is not seeking any major acquisitions.

Currently Gentex has a share repurchase plan in place with the authorization to repurchase up to 28 million shares of the company's common stock. To date, including the prior share repurchases, the company has repurchased about 26 million shares, leaving about two million shares authorized to be repurchased under the plan.

Tenneco

As one of the largest makers of emission and ride control products and systems for the original equipment market and aftermarket,

Tenneco

(TEN) - Get Report

is a $5.9 billion global manufacturing company with more than 20,000 employees around the world.

Its brands include Monroe, Walker, Gillet and Clevite Elastomer.

For the third fiscal quarter of 2009, Tenneco posted an earnings loss reduction of $8 million or 17 cents per diluted share, compared to a loss of $136 million or $2.92 the same quarter last year.

Wells Fargo

(WFC) - Get Report

, for one, believes that Tenneco is well-positioned to benefit from tightening emissions regulations across various vehicle segments, and that its revenue and earnings are poised to accelerate over the next two to three years.

"Assuming 25% of the company's revenue comes from the commercial/off-road vehicle end markets, we believe Tenneco's consolidated EBIT (earnings before income and tax) margin could approach 5.5%, up from an estimated 2.4% in 2009," Wells Fargo analysts wrote in a note to investors.

In the first week of January, Wells Fargo raised its 2010 earnings estimate for Tenneco to 81 cents from 65 cents and 2011 earnings to $1.70 from $1.65.

The analysts have an outperform recommendation on the stock with a valuation range of $27 to $30, up from the previous valuation of $16 to $18. Wells Fargo believes that Tenneco stock offers significant upside potential from current levels and that its free cash flow conversion is beginning to improve.

Wells Fargo also carries an optimistic view of the auto-supplier sector as a whole, recently raising its rating for the sector to overweight. Wells Fargo believes suppliers are positioned to exceed earnings expectations as 2010 unfolds. Wells Fargo said if U.S. vehicles unit sales exceed 11.2 million, there would be a potential upside to their current 10.7 million North American unit production forecast.

Wells Fargo has raised its 2010 North American production forecast for the auto-supplier sector to 10.7 million units from 10 million units.

"Importantly, we have not raised our 2010 U.S. sales forecast (11.2M, +8% yr./yr.) implying potential upside if U.S unit sales exceed our expectation," the analysts write in a note to investors.

Magna International

It's safe to say that almost every leading auto-manufacturer looks to

Magna International

(MGA) - Get Report

for its auto-parts needs.

A wide array of car brands depend on Magna International components, including:

Fiat

,

Ferrari

,

Ford

(F) - Get Report

,

Maybach

,

Mazda

,

Mercedes-Benz

and

Toyota

(TM) - Get Report

.

Magna International also supplies modules, components and assemblies to original equipment manufacturers (OEMs) of cars and light trucks in North America, Europe and elsewhere, including Asia, South America and Africa.

With its technical knowledge and expertise, the company also has the ability to become an auto manufacturer itself. "Technology is a strong point," for Magna, says Standard & Poor's analyst Efraim Levy. "It is capable of manufacturing full, complete vehicles."

Levy adds that "

Magna has an opportunity to grow into different regions like Russia. That would expand its potential markets."

For the third quarter of fiscal 2009, Magna reported net income of $51 million or diluted earnings of 45 cents per share, up from a loss of $215 million and $1.93, respectively, compared to the year-ago period.

"While we believe many companies in the automotive parts industry are struggling with challenged balance sheets, and that this has contributed to some of them filing for bankruptcy protection, we consider Magna to be financially healthy," Levy wrote in a note to investors.

For fiscal year 2010, analysts estimate that Magna's earnings per share will grow by 252% to $2.91, according to Standard & Poor's.

In light of this, Standard & Poor's has a strong buy recommendation for Magna with a 12-month price target of $63.

Noteworthy is the fact that in May 2009 Magna suspended the dividend on its Class A and Class B shares of stock due to tough economic circumstances.

Levy explains that "Magna has a healthy balance sheet, but for conservativeness shepherded cash and omitted dividends in the middle of the year

2009."

Looking out a few years, Levy believes that Magna may need to rely on increasing international sales to overcome the planned discontinuance of certain Chrysler product lines, and believes the company will benefit from increasing product, customer and geographic diversification.

He adds that Magna has the finances to make a meaningful M&A transaction, but that the failure of its plans to buy GM's controlling stake in Opel with Sberbank doesn't mean that the company is searching for a replacement deal. Instead, Magna may choose to use the funds that would have gone into an acquisition to retire upcoming debt.

ArvinMeritor

As a 100-year old company with a history of providing top-notch products to original equipment manufacturers (OEMs) and the aftermarket, ArvinMeritor's components are recognized in both the transportation and industrial sectors.

The company supplies a broad range of integrated systems, modules and components to commercial truck, trailer and specialty OEMs as well as certain aftermarkets and light vehicle manufacturers.

In the fourth quarter fiscal 2009, the company reduced its loss from continuing operations to $49 million, or 68 cents per diluted share, compared to a loss $160 million from continuing operations, or $2.22 per diluted share, in the same period last year.

"We are proud of our performance in the fourth quarter and the 2009 fiscal year," said the company's CEO Chip McClure in a statement. "Our team has not only generated positive free cash flow for two consecutive quarters, we've also reported cost savings in our commercial vehicle businesses of $195 million, complied with all debt covenants, and completed various other actions that we believe will strengthen the company as we benefit from improving conditions in global markets; particularly in China, India and Brazil," said McClure.

Wall Street Strategies has reiterated its buy rating on the stock, raising its price target to $15, up from $11 previously. David Silver, a Wall Street Strategies analyst, says one of the key drivers behind ArvinMeritor's strength in 2010 is that "its heavy truck production and sales, as well as off-highway products, will improve in the coming year."

Wall Street Strategies points out that in previous quarters ArvinMeritor had been pressured by its less-than-stellar light vehicle systems business, but that since most of it has been divested, the company should now see improving margins.

Currently 58% of ArvinMeritor's core businesses still come from North America, with the rest from South America and the Asia-Pacific, according to Wall Street Strategies. However, analysts expect the company will make a greater shift towards the Asia-Pacific and South American regions over the next two years.

Johnson Controls

It's hard to imagine that

Johnson Controls

(JCI) - Get Report

, a leader in the manufacturing of auto-interiors, auto-batteries and building efficiency systems, began as a small manufacturer of electric room thermostats in 1885.

From its humble beginnings, Johnson Controls has built itself into one of the most important suppliers of auto-parts. In fiscal 2009, its key customers included Ford, GM and Daimler, according to Standard & Poor's. Currently, Johnson Controls runs 210 plants in 31 countries, according to Wall Street Strategies.

"I like its management team a lot," says Standard & Poor's equity analyst Efraim Levy. "

JCI has done an excellent job of growing the business."

And, in truth, Johnson Controls' auto-battery operation is the largest in North America, accounting for 14% of fiscal 2009 sales. More than 40% of sales came from the company's seating and seating-parts operations during that time, according to Standard & Poor's.

The company even has an efficiency business for non-residential buildings that focuses on making and maintaining their heating, ventilation, air-conditioning systems and lighting controls, as well as security- and fire-management systems.

Johnson Controls' building efficiency business also includes facility management for Fortune 500 companies. It currently oversees more than 1 billion square feet worldwide, according to the company's web site.

"Besides the strength in its automotive business, Johnson Controls rounds out its risk by having a controls/efficiency business," Levy says. "It provides a lot of stability for the company."

Levy expects the company's building efficiency business to do well in 2010.

As of September 2009, Johnson Controls had an unearned backlog of building systems and services contracts totaling $4.3 billion, according to Levy.

For the fourth fiscal quarter of 2009, Johnson Controls reported net income of $300 million, or 47 cents per diluted share, compared with $16 million, or 3 cents per diluted share, in the year-ago period.

"We entered 2009 with two of our markets already depressed: North American automotive and residential HVAC (heating, ventilation, air-conditioning)," Johnson Controls' Chairman and CEO Steve Roell said in a statement. "As the year progressed, we navigated through customer and supplier bankruptcies and deteriorating global economic conditions. We responded throughout the year with actions to significantly improve our cost structure and liquidity."

Of course, management expects sales, earnings and margin improvements in its core businesses in 2010, driven by higher global automotive production forecasts in 2010 compared with 2009, and a resumption of higher growth rates in global emerging markets. For the 2009 fiscal year, the company's sales totaled $28.5 billion. Johnson Controls anticipates a sales increase of 9%, to about $31 billion for fiscal 2010.

Both Standard & Poor's and Wall Street Strategies have a buy recommendation on the stock. David Silver, a Wall Street Strategies analyst, calls Johnson Controls, "one of the leaders in lithium ion battery production," and notes that the company possesses "other segments that will capitalize on any resurgence in construction."

Silver has a $32 price target for Johnson Controls.

Johnson Controls earnings are expected to increase to about $1.35 to $1.45 per diluted share, compared with an earnings loss of 57 cents per diluted share in fiscal 2009.

"That's a company that can afford to pay a dividend and does, so we don't see a risk going forward of future reduction at this point," says Levy.

-- Reported by Andrea Tse in New York

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