Auto parts stocks trail the S&P 500 by about 22% in 2020 as investors fret over weaker consumer spending and possible supply chain disruptions caused by the pandemic. However, the group found a higher gear yesterday after data cited by Barron's revealed that light-vehicle sales have risen for six consecutive weeks. Moreover, Credit Suisse previously expected May retail auto sales to be down 52% but now forecasts a less severe decline of between 16% and 26% from a year ago.
The better-than-expected outlook for U.S. car sales comes several days after electric vehicle maker Tesla, Inc. (TSLA) restarted its Fremont, California assembly factory despite conflict with local authorities. The move, however, received support from President Donald Trump, with the president tweeting that California should allow Tesla to open the factory, adding that the state could do it fast and safely.
Below, we take a more detailed look at three prominent auto parts companies and analyze their charts to identify possible trading opportunities.
Aptiv PLC (APTV)
Headquartered in Dublin, Ireland, Aptiv PLC (APTV) manufacturers and sells vehicle components through two business divisions: Signal and Power Solutions, and Advanced Safety and User Experience. The auto parts maker, which generates about 20% of revenue from General Motors Company (GM), has ramped up its production of equipment for autonomous driving and electric vehicles in recent years to stay atop of key trends sweeping the industry. On the earnings front, the company has exceeded bottom-line expectations in the past nine consecutive quarters. Aptiv stock has a market capitalization of $16.1 billion and has tumbled 33.27% on the year as of May 15, 2020.
Aptiv shares have recouped more than half of their coronavirus-driven sell-off since bottoming just below $30 in mid-March. The stock has retraced about 20% over the past two weeks; however, yesterday's intraday reversal back above the 50-day simple moving average (SMA) suggests that buyers may be ready to resume the uptrend. Tactical traders who take a position should set a stop underneath the May low at $57.26 and target a move to around $80, where price finds resistance from a horizontal trendline and the 200-day SMA.
LKQ Corporation (LKQ)
LKQ Corporation (LKQ) distributes vehicle replacement parts, components, and systems, and it operates an auto salvage business. The Chicago-based auto parts maker recently reported first quarter adjusted earnings of 57 cents per share on revenue of $3 billion, with both figures topping Wall Street expectations amid a strong performance from the company's North American unit. Analysts have a 12-month price target on the stock at $32.56, representing 38% upside potential from Thursday's $23.54 close. Although LKQ shares have declined 34.06% so far this year, they have bounced back nearly 10% over the last month as of May 15, 2020.
Since reaching its April 30 high at $27.50, the stock has pulled back to the top trendline of an ascending triangle pattern that provides a buy the dip opportunity at $22 support. Furthermore, the price completed a two-day piercing pattern yesterday that implies a potential reversal from a downtrend to an uptrend. Those who buy at current levels should set a take-profit order just below $30, where price may encounter resistance from the October 2019 swing low and 200-day SMA. Cut losses if the stock closes beneath the piercing pattern low at $21.42.
BorgWarner Inc. (BWA)
BorgWarner Inc. (BWA) manufactures turbochargers and emissions system parts through its Engine segment as well as making auto electrical equipment, such as power electronics, control modules, and transmission components, through its Drivetrain business. The company earlier this month said that it had resolved a dispute with U.K.-based smaller rival Delphi Technologies and plans to acquire it in the second half of 2020. The deal helps expand the auto part marker's clean technology portfolio. As of May 15, 2020, BorgWarner stock offers a 2.58% dividend yield but has fallen 35.5% year to date.
The share price broke down below the lower trendline of a rising wedge pattern Wednesday, but it recovered strongly Thursday, raising the possibility of a head-fake trade. Active traders should target a move to $34 – an area on the chart that finds resistance from the 200-day SMA and an array of horizontal price action over the past year. Consider exiting the position if the price closes below the 50-day SMA.