It may seem unlikely now, but cars and trucks are about to get electrified in a big way. That’s the takeaway from a research note recently published from Morgan Stanley, reports Jon Markman, growth stock expert and editor of Strategic Advantage.
The venerable investment research firm notes three recent actions by auto industry executives that clearly lay out the transition. It’s an opportunity for investors to get ahead of the curve.
The move to electric has been in the works for a long time. Automakers were forced back to their drawing boards when Elon Musk showed with Tesla (TSLA) that electric vehicles could fun to drive, while ticking all of the boxes among upscale environmentally friendly buyers.
Electrification is coming and it means a sea change of opportunity for investors. It means new systems and processes. It means a new category of component winners with built-in competitive advantages and plenty of runway.
Amphenol (APH) makes electric wiring interconnect systems, sensors, antennas, infotainment, light assemblies, switches and power management products for the automotive sector.
The Connecticut company completed the acquisition of SSI last year to broaden its portfolio to high tech sensor systems, including ultrasonic level systems used widely across the automotive and industrial sectors.
Admittedly, it’s a dull business. But it’s also surprisingly lucrative, and destined to improve as more as electric cars go mainstream.
In the interim, Amphenol has also become a leading player in the military, commercial aerospace, mobile, broadband and data communications markets, too. And those businesses are booming.
The company reported in April that first quarter sales reached $1.96 billion, rising 5%. Operating margins were 20.1% during the quarter, and free cash flow was $344 million.
Shares trade at 24x forward earnings, and 3.3x sales. The market capitalization is $28.2 billion, following a 16.9% rally so far in 2019. Given the bright prospects for new markets such as EVs, growth investors can consider buying Amphenol shares into market weakness over the summer.
