Top Picks 2016: Lear

01/12/2016 7:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Our Top Pick for growth investors is a firm that scores 65 or higher for five of six Quadrix categories, contributing to an overall rank of 99 out of 100, explains Richard Moroney, editor of Dow Theory Forecasts.

Lear (LEA) returned 29% in 2015, while the median S&P 1500 auto parts stock has lost 3%. The stock also looks attractive relative to peers, earning maximum scores of 100 for both sector specific ranks.

Yet Lear trades more than 25% below industry medians for trailing P/E, price/sales, and price/free cash flow; it also ranks among the cheapest one-third of stocks in our research universe for all three metrics.

Learrecentlyagreed to acquire Arada Systems, a company that designs vehicle connectivity technology. The purchase fits with Lear's strategy of pursuing smaller deals in connectivity and driver assistance technology.

In August, the company acquired Autonet Mobile, a software developer that helps cars communicate with dealers.

Looking ahead, the company is projected to grow earnings per share 14% in the 12 months ending September, versus its peer-group median of 11% growth.

The shares trade at 11 times estimated earnings, a 25% discount to the auto parts industry median. Lear is a buy on our Focus List.

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