It's no secret that the auto manufacturing industry is on the mend. Ford Motor Co. (NYSE:F) is on pace in 2010 to produce its best earnings per share since 2004, and even the long-time-underwater General Motors just posted its third consecutive quarterly profit. It was the biggest quarterly profit in the last eleven years, putting the company on pace for its first full-year profit in the last six years.
IN PICTURES: World's Greatest Investors
The industry's stocks have behaved accordingly. The S&P 1500 Automobile Manufacturer Index - which is admittedly made up mostly of Ford shares - is up a solid 46% since the end of August. Competitor Nissan Motor Co. (OTC:NSANY) is up 22% for the same period, well above the broad market's 13% gain for the timeframe. In all fairness though, it's not like these stocks don't deserve their progress.
Coming along for the ride are the auto parts makers is a group that seemingly should move in tandem with the auto manufacturers themselves. Whether or not they actually deserve their 31% gain since the end of August, however, isn't quite as clear, as their individual EPS figures are still all over the map.
With a little math work though, today we can at least start to get a better feel for just how well - or even if - the parts manufacturers are seeing the light of day. (For related reading, see Analyzing Auto Stocks.)
Auto Parts Maker Earnings
Note that this is only a sample of six companies to draw some broad conclusions, and they were all hand-selected companies. However, investing has never been an exact science, and the method to my madness is simple enough. I want to compare the group's earnings now to where they've been, and how they've changed since 2007. That group of auto parts manufacturers is made up of Johnson Controls (NYSE:JCI), Magna International (NYSE:MGA), Gentex Corp. (Nasdaq:GNTX), Lear Corp. (NYSE:LEA), Superior Industries Intl. (NYSE:SUP), and Dorman Products (Nasdaq:DORM).
Those stocks were selected for a couple of reasons. One, they're a fair cross-section of the auto parts and supplier industry, and two, they were each reasonably profitable in 2007, allowing us to make a meaningful comparison between now and then. To make that call, we just simply compare the groups' average EPS every quarter since then. In fact, just to make the playing field as level as possible, I even used a weighted average.
|Auto Parts Industry Avg. EPS Since Q1-2007|
Believe it or not, these companies really are back to where they were before the economy unraveled.
Now, this quick look at real results qualifies me for a "Master of the Obvious" award. That's fine; I'd just rather know for sure, as in my experience a lot of the "obvious" trends are also completely wrong.
It would also be amiss not to mention how there's at least a small survivorship bias in this sampling. Any company that was around in 2007 but isn't around now couldn't be counted in the sample, which means the current earnings comparison might not be a true apples-to-apples look.
The Bottom Line
Overall though, there's enough real meat here to reasonably say the auto manufacturing revival has pulled the auto parts industry out of its slump too. That should come as no real shock, but it's nothing we should trust without verifying first either.
And just for the record, these six stocks are sitting on an average trailing P/E of 20.4, and looking at a projected (2011) P/E of 15.7.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Stock AnalysisA summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
Options & FuturesInvesting during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
Investing BasicsHeld onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
EconomicsWill remaining calm and staying long present significant risks to your investment health?
Stock AnalysisIs DKS a bargain here?
Investing NewsA third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
Stock AnalysisHome Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
Stock AnalysisYelp investors have had reason to be happy recently. Will the good spirits last?
Stock AnalysisWalmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
Stock AnalysisAs a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>