Want a new way to play the electric vehicle game? Try these stocks says Bank of America

Published Wed, Apr 28 20216:17 AM EDTUpdated Wed, Apr 28 202110:36 AM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Bank of America analysts have picked three global auto parts firms that they say are trading at a discount and are likely to shake off competition from newer electric vehicle suppliers. Auto suppliers that make components for internal combustion engine cars are shaping up well to the challenge of making parts for EVs — and far from being disrupted by new firms, they have a "sizeable advantage" due to their scale and relationships with auto manufacturers, the bank's analysts said. BofA picked three global stocks ahead of a "strong" earnings season, assets that are trading at an average 12% discount to U.S. peers — and they also have higher dividend yields, the analysts said in a research note Monday. Here are the picks: BofA has a buy rating on German auto supplier Continental and said it is 16% ahead of consensus for the firm's full-year 2021 earnings. "We see concerns of disruption from new market entrants as overdone and believe the opposite is possible as Conti intensifies its focus on software and system integration, particularly in ADAS (advanced-driver assistance systems)," the analysts said. Like other auto firms, Continental restructured due to the pandemic last year, but BofA expects a return to "the good old Conti" by 2023. The bank said the stock has an upside potential of 18%. French auto supplier Faurecia is also a buy for BofA. "With a core focus on sustainable materials, lifecycle management and weight reduction — crucial for EVs — Faurecia has gained significant ground on its larger U.S. peers," the analysts said. The firm now supplies U.S. models including the Jeep Grand Wagoneer and Ford Super Duty. BofA's analysts said the stock has an upside potential of 17%. Paris-based Valeo is also buy-rated for the bank, which said its "leading" ADAS position and upside potential of 43% is "particularly compelling." The analysts also like Valeo's joint venture with Siemens to produce power electronics for EVs. BofA estimates that ADAS will make it more than 3.2 billion euros ($3.9 billion) in 2022 from supplying brands including Honda, Audi and Hyundai with light detection tech known as lidar. The bank said the stock has an upside potential of 43%. These European suppliers are "underappreciated" according to BofA, and they are "alive to and invested in" the growing ADAS segment, such as automatic parking, anti-lock braking systems and rain sensors. "Major T1s (tier-1 manufacturers) like Continental and Valeo recognize the importance of developing their own software solutions and providing sensor solutions rather than just hardware. Combining their existing scale, customer relationships and industry expertise will prove a significant hurdle for new entrants to overcome," the analysts said.

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Bank of America analysts have picked three global auto parts firms that they say are trading at a discount and are likely to shake off competition from newer electric vehicle suppliers.

Auto suppliers that make components for internal combustion engine cars are shaping up well to the challenge of making parts for EVs — and far from being disrupted by new firms, they have a "sizeable advantage" due to their scale and relationships with auto manufacturers, the bank's analysts said.

BofA picked three global stocks ahead of a "strong" earnings season, assets that are trading at an average 12% discount to U.S. peers — and they also have higher dividend yields, the analysts said in a research note Monday.

Here are the picks: