Two Turbocharged Auto Parts Stocks

12/23/2010 2:10 pm EST

Focus: STOCKS

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

Top parts retailer AutoZone and leading assembly components supplier BorgWarner are hitting on all cylinders, writes Louis Navellier in Blue-Chip Growth.

AutoZone (NYSE: AZO) is the No. 1 auto parts chain in the US. With approximately 4,645 stores in the US and Puerto Rico, there are few places in the country where you can't find an AutoZone nearby. The company also operates 235 locations in Mexico and is working to expand its business in international markets.

My mechanic tells me that of all the national chains, AutoZone has the best operation that supports car shops. Usually, that commercial business was more fractured and regional, but AutoZone is trying to take the commercial business to the national level.

And the company is thriving. AutoZone sales are up more than 12% from a year ago, which drove earnings 20% higher. The fact that the company posted a 10% earnings surprise and a 4% sales surprise has gotten the attention of Wall Street, and as the company continues to capture market share, now is the right time to pounce on this strong company.

I'm particularly excited about their upcoming quarterly report. The analyst community has revised its consensus earnings estimate 11% higher, and if business continues on its current path, we'll see AZO break through these increased estimates. AZO should be bought under $289. [Shares traded below $272 Thursday—Editor.]

Don’t Fear the Borg
BorgWarner (NYSE: BWA) is also a play in the auto parts industry but is in no way in competition with AutoZone. BWA sells its engine and drivetrain products to many of the world's largest automotive manufacturers, such as Ford (NYSE: F), Volkswagen (OTC: VLKAY) and Daimler (OTC: DDAIF). The company's products include turbochargers, air pumps, timing chain systems and transmission components. BorgWarner operates about 60 manufacturing and technical facilities worldwide. The company gets some 70% of sales from outside the US, with more than 50% coming from its European operations.

I expect that an ever increasing part of sales will come from China, which just overtook the US as the world's largest car market. Asia is on a huge economic upswing and BWA is in a great position to expand into this country and grab this growing market.

Like AZO, BWA has also had a string of strong quarters. Last quarter, BWA's sales rose 41% and earnings rose 520% to $106.7 million, or 87 cents per share, compared with $17.2 million, or 15 cents per share in the year-ago quarter. The analyst community was expecting earnings of 63 cents per share, so the company posted a 13% earnings surprise.

Looking forward, BorgWarner expects 2011 sales to rise 40%, up from its prior guidance of 32% to 35%. I should add that the company continues to aggressively buy back its outstanding stock, which boosts earnings per share. In the past three months, the analyst community has revised its consensus earnings estimate 7.2% higher. BWA should be bought under $77. [Shares traded at $73 Thursday—Editor.]

[Navellier recommended three more automotive plays last month, while Jim Jubak has recently warmed to another Detroit supplier—Editor.]

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