Cramer’s Top Auto Parts Plays
If you want to find big winners in this market, look for stocks that are underestimated, Cramer said Tuesday. And there are fewer groups more underrated than auto parts.
“If we get a recovery in auto sales, if we build more cars, then the auto parts suppliers could go through the roof,” Cramer said.
All things auto related have been crushed by high gasoline prices, a weak U.S. economy and slowing growth all over the world. But that negativity is priced into the stocks, the “Mad Money” host believes. What isn’t priced into the stock is the prospect of a recovery in the auto market, and Cramer thinks we are seeing some signs of that recovery. That's why he said the time to buy auto parts stocks is now.
So how should you play it?
Cramer’s favorite is Johnson Controls . It had a very bullish analyst day Monday, where it focused on its division that makes batteries for hybrid and electric vehicles, a business Cramer said is currently “on fire.” He also likes the company’s strong balance sheet, diverse customer mix and the fact that it’s “dirt cheap.”
“The stock could go up 50 percent from here,” he said, “and it still wouldn’t be that expensive.”
But automotive parts are just a part of Johnson Controls' business. If homegamers want a pure play on auto parts, Cramer recommends Lear, which designs and manufactures seat systems and related components for cars and light trucks and makes automobile wiring and power management systems. Lear currently has a $2.2 billion sales backlog through 2013 and is selling for 8.5 times next year’s earnings with an 11 percent growth rate.
Another pure play Cramer likes is BorgWarner , which manufactures turbochargers that improve power output while reducing fuel consumption, emissions systems and drivetrain parts. The stock sells for 14.8 times next year’s earnings with an 18 percent growth.
"You can't wait for the recovery to hit you in the face," Cramer said. "You gotta buy the auto parts stocks now, while they’re still priced for disaster."
When this story was published, Cramer's charitable trust owned Johnson Controls.
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