American Axle: A Bet on SUVs

09/05/2003 12:00 am EST

Focus:

Nancy Zambell

Editor, Wall Street's Best Investments and Wall Street's Best Dividend Stocks

"The American love affair with the light-duty truck–which includes SUVs–began in 1994 and by 2002, light truck sales accounted for 51% of all vehicles sold," notes Nancy Zambell , in UnTapped Opportunities . "These figures impact our latest new buy–American Axle–whose primary market is light trucks." Here’s her review.

"American Axle & Manufacturing (AXL NYSE) was created in 1994 when Richard Dauch, former Chrysler executive (and current chairman of AXL), bought GM’s axle plants for $50 million, along with a group of investors. Some of the facilities dated back to 1917, and some significant capital investments had to be made to get them up to par. And it has–to the tune of $2.1 billion. But the investment has paid off. In just nine years, the company has grown from five dilapidated plants to 23 world-class facilities and expanded its customers from two clients in two countries to 75 customers in 12 countries. And the bottom line has been profitable every year since–even through the latest recession. In 2002, the company reported record earnings of $176 million, up 53%, on record sales of $3.5 billion, which were up 12%.

"This is a fine example of a ‘value’ company. There is no hype, and its business requires no technical definitions that your grandmother can’t understand. It’s simple: American Axle makes auto parts. We believe the shares remain very undervalued relative to its peers. Trading at a p/e less than one-half its competition, it shouldn’t be long before the rest of the stock-buying public catches on. The company has shown a proven ability to grow revenues and profits in good times and bad. And with the economy expected to recover soon, the road appears long and promising for the company. I recommend AXL up to $32, with a mental stop loss at $27.50."

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