Toyota's (NYSE:TM) series of recalls creates opportunities for investors. Automotive stocks are a clear play, but investors should also consider automotive safety system providers like TRW Automotive (NYSE:TRW). The automotive systems designed to keep us safe are becoming more complex as drivers are tempted to focus more on their cell phones than on the road ahead.

IN PICTURES: Eight Ways To Survive A Market Downturn

Driver Safety
Have you ever fallen asleep at the wheel? Do you swerve a little while texting and driving? What about the time you changed lanes thinking that your blind spot was empty, realizing at the last moment that it wasn't? TRW is working to combine technology and sensing capabilities in order to alert drivers of these events before they happen. For example a vibrating steering wheel for drowsy drivers and a lane change assist/blind spot assist system to alert drivers of danger when changing lanes are current TRW products.

Lower Vehicle Production Hurts
TRW's net sales stalled for the first nine months of 2009, coming in at $8.2 billion and representing a 32.4% drop from the prior year. TRW's operating income of $60 million for the period versus $424 million a year ago also reflects the crushing effect of depressed automotive sales. Revenue's for TRW's Chassis systems for braking and steering, its largest contributor to revenues, dropped by $2 billion during the period. (For related reading, check out The Impact Of Recession On Businesses.)

Impact of the Big Three
(NYSE:F), Chrysler and General Motors are major customers of TRW Automotive systems. The major changes in the automotive industry still have an unclear impact on their future viability as primary customers. Investors should not be dismayed entirely since North America represented 30% of TRW's 2008 sales while Europe, Asia and the rest of the world generated 56%, 9% and 5% in comparison. North American sales will remain a significant driver, but the global reach of TRW offers growth opportunities beyond US shores. (For related reading, check out Going International)

Right on Track
I believe TRW is on the right track by focusing its growth initiatives around its electronics segment since more electronic content and passive safety systems are key selling points for car buyers.

Sweden based Autoliv (NYSE:ALV) also delivers automotive safety systems while focusing on airbag and seatbelt products. For the full year 2009 Autoliv sales also felt the weight of decreased automotive production as sales fell 21% to $5.1 billion. While those numbers reflect the market in Europe, North America and Japan, sales actually increased by 14% to $897 million in rest of the world including China and India. Autoliv also noted that Ford along with Asian and European automakers increased production in the fourth quarter of 2009.

Why Now Is Better Than Later
High unemployment, low consumer confidence and tight credit markets are the headlines of today - keeping auto buyers at home. A reversal of slow economic conditions and sustained positive growth stories from domestic and foreign automakers will likely lift the performance and stock of automotive safety system suppliers higher. (For more, check out Analyzing Auto Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  2. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Investing

    What’s the Difference Between Duration & Maturity?

    We look at the meaning of two terms that often get confused, duration and maturity, to set the record straight.
  5. Trading Strategies

    How to Trade In a Flat Market

    Reduce position size by 50% to 75% in a flat market.
  6. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  7. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  8. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  9. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  10. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  1. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  2. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  3. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  4. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  5. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  6. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>

You May Also Like

Trading Center