BorgWarner (BWA) Is Today's Roof Leaker Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified BorgWarner ( BWA) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified BorgWarner as such a stock due to the following factors:

  • BWA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $80.4 million.
  • BWA has traded 824,765 shares today.
  • BWA is trading at 1.85 times the normal volume for the stock at this time of day.
  • BWA crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on BWA:

BorgWarner Inc. manufactures and sells engineered automotive systems and components primarily for powertrain applications worldwide. The stock currently has a dividend yield of 0.9%. BWA has a PE ratio of 2. Currently there are 11 analysts that rate BorgWarner a buy, no analysts rate it a sell, and 3 rate it a hold.

The average volume for BorgWarner has been 1.3 million shares per day over the past 30 days. BorgWarner has a market cap of $13.4 billion and is part of the consumer goods sector and automotive industry. The stock has a beta of 1.25 and a short float of 2.9% with 5.04 days to cover. Shares are up 8.3% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates BorgWarner as a buy. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the ratings report include:
  • The current debt-to-equity ratio, 0.52, is low and is below the industry average, implying that there has been successful management of debt levels. To add to this, BWA has a quick ratio of 1.62, which demonstrates the ability of the company to cover short-term liquidity needs.
  • BORGWARNER INC has improved earnings per share by 14.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, BORGWARNER INC increased its bottom line by earning $2.86 versus $2.71 in the prior year. This year, the market expects an improvement in earnings ($3.24 versus $2.86).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Auto Components industry average. The net income increased by 12.4% when compared to the same quarter one year prior, going from $159.10 million to $178.90 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Auto Components industry and the overall market on the basis of return on equity, BORGWARNER INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • BWA, with its decline in revenue, slightly underperformed the industry average of 3.8%. Since the same quarter one year prior, revenues slightly dropped by 4.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.

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