It has been a game of tug a war for auto stocks in 2019. On the one hand, a buoyant economy driven by a tight labor market and increasing consumer disposable income has supported the group, while the ongoing U.S.-China trade dispute and slumping car sales have presented challenges. Performance-wise, the industry has risen almost 30% this year, comfortably trumping the S&P 500's 21.17% gain.
LKQ Corporation (LKQ) reminded investors that the industry remained in good shape when the auto parts company announced Thursday that it plans to increase its share repurchase program and also delivered blowout third quarter (3Q) results. The segment received a further boost after powertrain products firm BorgWarner Inc. (BWA) reported better-than-expected quarterly earnings.
LKQ Corporation (LKQ)
Operating in North America and Europe, LKQ distributes replacement parts and components used in the repair and maintenance of vehicles. As mentioned above, the company intends to buy back an additional $500 million of its shares, increasing its aggregate repurchase program authorization to $1 billion. Since the commencement of the buyback program in October 2018, the company has bought back 13.2 million shares for $352 million. On the earnings front, LKQ reported a profit of 61 cents per share, topping the Street expectation by four cents. On a year-over-year (YOY) basis, the aftermarket auto parts distributor's bottom line increased by 8.9%. Meanwhile, revenues for the September quarter came in at $3.15 billion, above forecasts of $3.12 billion. Trading at $33.99 with a market capitalization of $10.48 billion, the stock has gained 43.24% this year, outpacing the auto part industry average by about 13% as of Nov. 1, 2019.
LKQ shares staged an explosive breakout from a period of three-month consolidation in mid-September before forming a pennant-like continuation pattern over the next six weeks. News of the company's buyback and impressive earnings sent the stock ripping nearly 8% higher on above-average volume yesterday. Traders who want to capitalize on the strong upside price momentum should consider setting an initial take-profit order near crucial overhead resistance at $38 and limiting downside with a stop placed just below the pennant's top trendline.
BorgWarner Inc. (BWA)
BorgWarner provides solutions for combustion, hybrid, and electric vehicles globally. It operates through two business segments: Engine and Drivetrain. The Michigan-based auto parts maker posted a Q3 profit of 96 cents per share, surpassing analysts' estimates of 85 cents. Revenue for the period of $2.49 billion edged up 0.6% from the year-ago quarter. Management credited robust revenue growth in the company's Drivetrain division, which reached $993 million, for the encouraging quarterly results. From a valuation standpoint, the firm trades at about 10 times forward earnings, substantially below its five-year average multiple of 23.14 times. As of Nov. 1, 2019, BorgWarner stock has a market value of $8.61 billion, yields 1.73%, and is up 14.39% year to date (YTD).
BorgWarner's share price has traded within a loosely constructed descending channel since late March. The auto parts company's encouraging earnings helped propel its stock price above the channel pattern's upper trendline and set a three-month high. Furthermore, the breakout occurred on the most substantial daily volume in almost 12 months that may drive further momentum-based buying in subsequent trading sessions. Those who enter here should look for a move to a zone of resistance between $46 and $50. Protect trading capital with a stop-loss order placed underneath intermediate support at $40.
Autoliv, Inc. (ALV)
Stockholm, Sweden-based Autoliv manufactures and supplies automotive safety systems to the automotive industry. The company's products include airbags, seatbelts, steering wheels, battery cable cutters, and pedestrian protection technology. The $6.8 billion auto safety equipment firm delivered Q3 adjusted earnings of $1.30 on revenues of $2.03 billion. This compares to respective figures of $1.35 and $2.03 billion in the third quarter of 2018. Autoliv cited increased raw materials costs and a sharp decline in global light vehicle production (LVP) for the lackluster results. Earlier last month, Evercore ISI analyst Chris McNally upgraded Autoliv stock to in-line from underperform, noting that the company may receive a boost from seasonality spending. Autoliv stock has returned nearly 14% YTD, jumping over 8% in the past three months alone as of Nov. 1, 2019. Investors also receive a 3.18% dividend yield.
Since carving out a double bottom over the summer months, the company's shares have continued their climb higher. In another win for the bulls, the 50-day SMA crossed above the 200-day SMA in mid-October to generate a "golden cross" buy signal and confirm a new uptrend. Swing traders should seek an entry point close to $76, were price encounters support from both the July swing high and 50-day SMA. Once in a trade, think about placing a stop order below $75 and targeting a move to the 2019 high at $85.22.