Lear Corp.

01/10/2014 6:00 am EST

Focus: STOCKS

John Reese

Founder and CEO, Validea.com And Validea Capital Management

 

Our top pick for 2014 is a 97-year-old Michigan-based firm that supplies automotive seating and electrical power management systems to customers around the world, explains John Reese, editor of Validea.

Lear Corporation (LEA) is $6.5 billion market cap firm with employees in 36 countries; in the past year, it has taken in over $15 billion in sales.

Lear shares have had a big year, thanks, in part, to a rebound in the auto industry and generally improving economic conditions in the US.

My Guru Strategies (each of which is based in the approach of a different investing great) think it has room to run.

My Kenneth Fisher-based model likes its 0.42 price/sales ratio, inflation-adjusted, long-term earnings per share growth rate of 23.4%, and solid 5.4% three-year average net profit margins.

My Peter Lynch-based model, meanwhile, likes Lear's dirt-cheap 6.2 trailing 12-month price/earnings ratio and stellar 25% long-term EPS growth rate, which make for an exceptional 0.24 P/E-to-growth ratio, a metric Lynch himself pioneered.

We would note that Lear's 2012 growth was skewed a bit by a tax-related gain. But even if we use the firm's forward P/E of 13.9, and its projected long-term growth rate of 16.4%, we get a very reasonable 0.85 PEG ratio.

And finally, my James O'Shaughnessy-based growth model likes that Lear has been increasing EPS in each year of the past half-decade, and that it has a key combination of qualities: a high relative strength (82), which is a sign the market is embracing the stock, and a low price/sales ratio, a sign it hasn't gotten too pricey.

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