In this article we will talk about the 10 best auto-parts stocks to buy for 2021. The automotive aftermarket industry is going through interesting times. People are fixing up their old cars to avoid public transport amid the coronavirus crisis, resulting in an increased demand for car parts. Even though the car parts industry wasn't safe from uncertainty and losses in 2020, the new year could bring in huge opportunities for long-term investors. Click to skip ahead our discussion and see the 5 best auto-parts stocks to buy for 2021.
Like every industry the automotive aftermarket sector has experienced a bumpy ride in 2020 amid the coronavirus crisis. In the beginning the industry got hammered after vehicle miles traveled (VMT) dropped across the country, resulting in a steep decline in auto parts demand. Restricted movement in all states also resulted in less usage of personal vehicles, fewer collisions and limited customer spending on new auto parts. Vehicle sales in the U.S., which were already crashing, worsened after the COVID-19 outbreak as consumers started to limit their spending. In November, new car sales posted a 15% decline. All of this painted a bleak picture for the auto-parts industry.
An Antifragile Industry
But the auto-parts industry is known for its anti-fragility. In the period between 2007 to 2009, when the U.S. economy was in recession and auto sales for new cars plunged 42%, the aftermarket experienced just a 1% decline. Analysts now believe that the auto-parts industry is set for a strong rebound and growth in 2021 on the back of several factors.
Firstly, a decline in new car sales will buoy demand for auto parts as people drive their old cars and trade used cars. Secondly, people are starting to shun public transport and prefer using personal cars to avoid contracting the coronavirus. Stephan Wöllenstein, chief executive of Volkswagen Group China, said earlier this year that the company is seeing a rise in sales, mostly from young buyers, who accounted for about 60% of the company’s sales in March. In a survey conducted by the Institute for Transport Research in June and July, 50% of respondents said they are using public transport less often or much less often because of health risks. This trend will help the auto-parts industry grow in 2021 and beyond.
McKinsey & Company forecasts that the auto-parts industry will grow at a rate of 3% per annum through 2030. However, the industry is expected to go through several key changes in consumer behavior, including a shift to e-commerce, direct distributions and partnerships. The aftermarket industry growth will touch new highs in Asia, according to the report. McKinsey expects automotive aftermarket revenues of approximately €337 billion in North America and approximately €295 billion in Europe in 2030.
Times are changing rapidly. The hedge fund industry’s reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Growth Catalysts for Car Parts Stocks in 2021
Several growth catalysts are on the horizon for the auto parts industry. One of them is emerging technologies and the upcoming demand for new injection systems and turbochargers. The rise of hybrid, diesel and electric vehicles in the U.S., Europe, China and Asia will push auto parts companies to invest in innovation for growth in 2021 and beyond. The auto-parts industry is also transitioning rapidly to ecommerce. According to an estimate, ecommerce sales accounted for $16 billion of the total U.S. automotive aftermarket revenue, crushing analysts’ forecasts.
Data shows that personal consumption of auto parts reached an all-time high of $50.509 billion in June 2020. With the availability of coronavirus vaccines and traffic coming back to pre-COVID levels globally, auto-parts stocks are poised to grow in 2021. The Dow Jones U.S. Auto Parts Index is up over 16% in 2020.
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Based on our data of 816 elite hedge funds and analysis of fundamentals, let's take a look at the 10 best auto-parts stocks to buy for 2021.
10. Tenneco Inc (NYSE: TEN)
Tenneco is a Fortune 500 company that sells aftermarket ride control and emissions products manufacturer. It ranks 10th on the list of 10 best auto-parts stocks to buy for 2021, as 18 hedge funds tracked by Insider Monkey held stakes in the company as of the end of the third quarter, up from 14 funds in the previous quarter. The total value of these stakes is $82.48 million. The biggest stakeholder of the company is Carl Icahn’s Icahn Capital LP, which owns 9,136,392 shares of the company, worth $63.41 million.
Tenneco plans to offer $500 million principal amount of senior secured notes due 2029. In the third quarter, its EBIT margin jumped 260 bps to 5.5%, while adjusted EBITDA increased by 0.3% to $388 million.
Cash from operations came in at $486 million, versus vs. $164 million reported in the same quarter last year.
9. Standard Motor Products, Inc. (NYSE: SMP)
Ranking 9th on the list of the best auto-part stocks to buy for 2021 is New York-based Standard Motor Products, Inc. (NYSE: SMP), which is in the portfolios of 19 hedge funds out of 816 tracked by Insider Monkey, as of the end of the third quarter. The total value of these investments is $86.24 million.
Standard Motor stock is down over 24% year to date. Most of this value was shed recently when the company announced that a large retail customer informed that it would no longer be using its Engine Management product line. The company said that this customer had historically purchased approximately $140 million of Engine Management products annually.
In the third quarter, Standard Motor’s Engine Management sales were up 6.3%, while Temperature Control sales grew by 25%. Overall, the company beat Q3 GAAP EPS estimates by $0.43.
8. Magna International Inc. (NYSE: MGA)
Magna International Inc. (NYSE: MGA) is a Canadian company that sells car parts, body exterior, seating systems, electronics, mirrors & lighting, mechatronics and roof systems. As of the end of the third quarter, 21 out of 816 hedge funds tracked by Insider Monkey owned stakes of Magna, up from 19 funds a quarter earlier.
Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital owns 3,497,700 shares of the company worth $160.01 million.
Magna International recently made headlines after it struck a $1 billion partnership with LG to make components for electric cars. The joint venture, named LG Magna e-Powertrain, will manufacture e-motors, inverters and onboard chargers. The venture will give Magna a strong position in the growing market of EV components like e-axle systems, electric motors, power controls and driving gear. Here is what VLTAVA Fund said about MGA in its 2020 Q2 letter:
“Some companies in our portfolio are meanwhile faring better than we expected. Specifically, that is the case for Magna, BMW, Samsung and Humana. Magna is showing itself to be more resistant to recession than we had counted upon. Its operating leverage is lower than in the last recession, its balance sheet is strong, and it very probably will boost its market share during this recession, whether organically or by acquisitions.”
7. Carparts.Com Inc (NASDAQ: PRTS)
Carparts.Com is a California-based company that sells aftermarket auto parts, including collision parts, engine parts, and performance parts and accessories online. As consumer behavior shifts towards e-commerce, Carparts has a strong edge over competitors due to its solid online presence. In the third quarter, the company’s net sales increased by 69% to $117.4 million, compared to $69.3 million in the third quarter of 2019. E-commerce sales on the company’s website jumped 105% in the quarter. Carparts.com CEO Lev Peker said in a post-earnings statement that Carparts is seeing growth amid a jump in the DIY market and a decline in public transportation use.
A total of 22 hedge funds in Insider Monkey’s database held positions in Carparts as of the end of the third quarter, up from 14 funds in the previous quarter. The total worth of these stakes is $149.17 million. There were a couple of insider purchases in early September around $10 per share when PRTS shares declined below the $10 level. The stock closed 2020 at $12.39.
6. Genuine Parts Company (NYSE: GPC)
Genuine Parts Company ranks 6th on the list of 10 best auto-parts stocks to buy for 2021. The Atlanta, Georgia-based company in November declared a quarterly dividend of $0.79 per share. In the third quarter, Genuine Parts’ revenue came in at $4.4 billion, up 1% excluding the impact of divestitures. Total operating margin in the quarter totaled 9%, a 100 basis point improvement on a year-over-year basis. Adjusted net income in the quarter came in at $237 million.
As of the end of the third quarter, 23 hedge funds out of 816 tracked by Insider Monkey had Genuine Parts shares in their portfolios. The total worth of these shares is $170.60 million.
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