“Many stocks related to the auto industry been beaten down quite severely over the last few years,” notes George Putnam.
In the highly-respected The Turnaround Letter he explains, “The industry may continue to struggle for a while, but it isn’t going to disappear.” Here he offers several ideas among auto parts of tire makers that he feels have “attractive rebound potential.”
“We believe that its near-term problems are already priced into many of the automotive-related stocks, giving them very attractive rebound potential.
“Therefore, we have selected a number of stocks with varying ties to the automotive industry that we expect to bounce back over the next couple of years.
“Federal-Mogul (NASDAQ: FDML) is an auto parts company that made a large number of acquisitions in the late 1990’s. t had trouble integrating the acquisitions and filed for Chapter 11 in 2001.
“After a long bankruptcy, which was complicated by asbestos issues, the company emerged at the beginning of 2008. It has a strong presence with many of the non-U.S. auto makers, as well as a good aftermarket business.
“Goodyear Tire & Rubber (NYSE: GT) has actually been doing reasonably well despite the hemorrhaging U.S. auto industry.
“Solid international markets have played a key role in growing sales, and management’s restructuring efforts have helped profit margins.
“Recent concerns about a recession in the U.S. have dragged the stock down to levels where it looks attractive again.
“Pep Boys (NYSE: PBY), an auto parts retailer, appears to be emerging from a period of upheaval. The interim CEO, who has good industry experience, could become permanent, and the company’s new CFO brings Wall Street credibility.
“Restructuring efforts have improved profit margins in the face of lower sales. Trading at just 0.2x sales and with estimates of its real estate assets running to $7-$8 per share, Pep Boys provides a reasonable speculation.
“Superior Industries (NYSE: SUP) makes aluminum wheels that it markets to a number of auto makers, including GM and Ford.
“The company is taking aggressive action to fend off the effects of declining auto sales. The combination of a plant closing and other layoffs will result in a 29% reduction of the company’s U.S. work force.
“These actions, combined with a strong balance sheet, should secure the company’s future. The stock’s attractive 3.5% dividend yield compensates you as you wait for the rebound.”
