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I talked Thursday about Lookin' California/Feelin' Minnesota; i.e., trying to find market-beating ideas in the warmth of an overheated market. The broad market indices are rocking again today, and yesterday I noted energy, autos and retail as three sectors that were underperforming, or feelin' Minnesota, thus far in 2017.
I attended an investment conference in Boston this week and met with senior managements of several companies in those sectors.
The automotive sector is my bailiwick, having followed it as a sell-side analyst for 11 years. With many of those years spent on auto components, I spent countless hours trying to explain to skeptical portfolio managers that auto-parts stocks can exhibit secular growth in a cyclical industry.
Without getting into the minutia of content per vehicle, etc., the most visible, demonstrable avenue for secular growth for a supplier is outsourcing. When parts of vehicle are shifted from in-house sourcing to an outside supplier, that is pure top-line growth for the parts manufacturer.
Tower International (TOWR) presented at the conference and the company's core competency in metal stamping is one that is always in demand. Stamping presses are gigantic, expensive and OEMs are constantly reassessing whether body and chassis stampings should be made in-house. The current ratio across the global auto industry is about 60/40 toward in-house, placing stampings among the most vertically integrated auto parts.