Volatility in the auto parts and services sector is likely to persist with the Detroit labor negotiations between GM, Ford, and Chrysler months away, one analyst said.
"I think there's really disproportionate risks that the stocks could see some softness in the next few months rather than go higher," Richard Kwas, Wachovia Securities Senior Auto Analyst, said on "Power Lunch."
However, he expects "meaningful concessions" will come of the labor negotiations.
He likes Borgwarner , which is up 40% year-to-date and has a growth rate of 11% per year. He added that Borgwarner outperformed the sector, as well as the broader market, and expects acquisitions in the future.
He also likes Group 1 Automotive , which has the highest Toyota exposure of the sector and has "above average management working to improve operating efficiencies." He expects there will be 20% upside to the stock.
His top pick, however, is United Auto Group , as he thinks "it's poised to outperform over the next 18 months," after underperforming within the sector and the broader market.