Buy BorgWarner (BWA)

01/13/2011 6:01 pm EST


Jim Jubak

Founder and Editor,

On January 11, BorgWarner (BWA) announced earnings guidance for 2011 of $3.85 to $4.15 a share.

That works out to earnings growth of 35% to 40% from the company’s projected earnings per share in 2010. Sales will grow by 16% to 20% in 2011. That’s a big comedown from the 40% sales growth the company got in 2010. But that was off a bottom in the North American auto market. The company’s projected 16% to 20% growth in 2011 is ahead of most Wall Street expectations. For example, Standard & Poor’s was looking for 12% revenue growth in 2011

The company also said that it expects 2011 operating margins of 10.5% or better. That’s an increase from the 9% to 9.5%--with an occasional peak at 10%--that BorgWarner discussed as its sustainable long-term operating margin at the time of its third quarter earnings announcement.

I laid out the case for the shares of auto suppliers in my January 10 post and BorgWarner’s guidance pushes this stock to among the most attractive in the group.

On the guidance from January 11 the stock trades at a forward price-to-earnings ratio of 16.6 to 17.9 times projected 2011 earnings per share. That seems very reasonable for a company projecting 35% to 40% growth in earnings during the year

The stock has dropped from $73.18 on January 5 to $68.87 at the close on January 13. I think this price is a good entry level.

As of January 13, I’m adding shares of BorgWarner to Jubak’s Picks with a target price of $82 a share by October 2011.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of BorgWarner as of the end of November. For a full list of the stocks in the fund as of the end of November see the fund’s portfolio at  I’ll have the fund’s portfolio as of the end of December posted in a few days.
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