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High Tech Autos Drive Delphi
01/30/2014 7:00 am EST
This is the most exciting time I've ever seen in the industry since I began tracking it 34 years ago as a young analyst in Detroit, suggests Michael Robinson in Money Morning.
New vehicles will have more cutting-edge technology than ever before; they are brimming with advanced sensors, semiconductors, micro-controllers, software, voice-activated GPS, and glitzy infotainment systems. That's what the connected car is all about.
No doubt, tech leaders such as Google and Apple stand to gain from the boom in cars sales. But neither is a pure play on advanced automotive technology.
That's why I think you should take a hard look at Delphi Automotive PLC (DLPH). The once-struggling firm is uniquely poised to benefit from the marriage of new vehicles and high tech systems.
Strictly speaking, Delphi isn't simply focused on the connected car, per se. Instead, it takes a much more wide-ranging approach to supplying the auto industry with must-have technology.
Based in the Detroit suburb of Troy, Michigan, Delphi offers a wide range of products used throughout the industry. For instance, it makes body control panels that feature remote keyless entry and alarms. It also makes digital displays designed to improve driver awareness.
And these days, it's getting a lot of media attention for its sophisticated safety devices. These include adaptive cruise control, lane departure warnings systems, and front and rear cameras integrated with collision avoidance radar.
Company officials say active safety is a major growth area for Delphi, adding that they already have a $1 billion backlog of orders in this segment.
The company filed for bankruptcy protection in 2005. That was a year after it suffered a stunning $4.75 billion loss as a company that made sparkplugs, steering wheels, and ball bearings.
Reorganized as a tech-focused auto supplier, Delphi went public in 2011 at $22 a share and was recently trading at around $60, for a post-IPO gain of 172%. But the stock still has plenty of upside because of the huge role it plays in the global auto industry.
It sells to more than a dozen major brand names and boasts some two million parts' numbers; Delphi ships more than 60 million parts around the world every day. No wonder Delphi earns a stunning 37% return on stockholders' equity, twice the industry average. It also has an operating margin and a return on assets of 10%.
And it offers a combination of growth and value. It trades at 18 times earnings, a slight discount from the S&P's ratio of 19. Over the past three years, Delphi has grown earnings per share by 35%, meaning they could double in less than three years.
Delphi is much more than just a company reborn. It's a key catalyst for one of the greatest auto-tech booms ever. And it's racking up plenty of profits for its shareholders along the way.
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