Auto-parts suppliers may still look like better investments than their Big Three customers these days, but that doesn't necessarily mean it's time to buy all of them.

Delphi ( DPH) is one example. Although the company has demonstrated tremendous progress on restructuring relatively high-cost operations and diversifying its sales base, its fate is still heavily tied to General Motors ( GM), which accounts for roughly 60% of Delphi's total sales. And as GM wrestles with market-share losses and historically high levels of inventory, the outlook for GM's production, and consequently Delphi's GM sales, is not encouraging.

With the stock down close to 6% so far this year, slightly worse than the 5% decline in the Dow Jones Auto Parts supplier index, many of the company's potential near-term challenges are already reflected in the stock price. On a valuation basis, however, the stock is not very tempting.

Although shares trade at an enterprise value-to-EBITDA ratio of 4.5, less than its peer group average of just over 5, the stock should trade at a discount due to its reliance on GM, its leveraged balance sheet (long-term debt to capital ratio of about 50%) and pension obligations (a roughly $4 billion unfunded liability at the end of last year). With its P/E ratio of 11.7 times this year's consensus earnings estimate of 82 cents per share, Delphi is right in line with the auto-parts supplier average of 11.5.

Down the Road

That's not to say Delphi isn't worth watching. Indeed, the second quarter pointed to encouraging progress the company has achieved on a number of fronts that could make the stock interesting a year or two from now. For instance, growth in Delphi's non-GM business continues to be quite strong, surpassing most analysts' expectations. Revenue from non-GM customers jumped 20%, excluding the impact of foreign exchange, and it accounted for a record high level of 45% of total sales.

Delphi is also an interesting way to play growth in China, where the company has 10 manufacturing facilities. Delphi generates roughly $1 billion in sales in China, which are growing in the 25% to 30% range. However, profit margins are in the double digits (compared with 3% for the company as a whole), suggesting that even though China sales are just 3% of the company's total, China profits could be as much as 25%.

If you liked this article you might like

Take Cover With General Dynamics

Take Cover With General Dynamics

Textron Soars on Cessna Wings

Textron Soars on Cessna Wings

Dow Chemical Approaching Its Peak

Dow Chemical Approaching Its Peak

J.C. Penney Has More Gains in Store

J.C. Penney Has More Gains in Store

ITW Comes to Party Early, Stays Late

ITW Comes to Party Early, Stays Late