Watch these auto stocks to outperform as supply chain risks hang over the sector
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Goldman Sachs sweeps down over the automobile sector with lower earnings estimates and clipped price targets to better reflect additional supply chain constraints in the near-term, as well as the expectation for weaker demand in the intermediate term.
"The COVID-related restrictions in Shanghai have lasted longer than we had initially expected, and even with Shanghai moving to reopen, we believe that parts/components supply remains a risk in the near to intermediate term," warned analyst Mark Delaney.
Delaney and team also pointed to weaker readings for key metrics that correlate strongly with auto demand like housing data, PMI prints, and consumer sentiment.
Goldman Sachs now forecasts global auto production of 79M units in 2022 vs. 82M prior view and 84M in 2023 vs. 86M prior view. The U.S. SAAR forecast for 2022 is reset to 14.5M units for 2022 and 15.75M for 2023, below the long-term average of about 16M.
Patient investors can find some attractive valuations and play the long-term electrification and mobility themes, per GS.
"We continue to have a positive bias for stocks of companies that generally have solid FCF generation, good market share, and the ability to benefit from growth in EVs, ADAS, and/or datacenter."
That list includes Sensata Technologies Holding plc (ST), TE Connectivity Ltd. (TEL), Amphenol Corporation (APH), Aptiv (NYSE:APTV), Lear (LEA), Magna International (MGA), Visteon Corporation (VC), Flex Ltd. (FLEX), Jabil (JBL), Keysight Technologies (KEYS), and National Instruments Corporation (NATI). Furthermore, Buy-rated ST, APTV, NATI, FLEX, and TEL are noted to be trading near the lower-end of historical valuation ranges on near-term estimates and have higher than 75% historical average free cash flow conversion and at least a 3% free cash flow yield. Meanwhile, Goldman Sachs said it is highly selective with OEMs, singling out Tesla (TSLA) and General Motors (GM) as the preferred picks.
Price target reductions: Ford (F) to $14 from $18, General Motors (GM) to $46 from $59, Tesla (TSLA) to $1,000 from $1,200, Aptiv (APTV) to $135 from $150, BorgWarner (BWA) to $40 from $41, Lear Corporation (LEA) to $158 from $163, Visteon (VC) to $147 from $150, Aurora Innovation (AUR) to $4 from $6, QuantumScape (QS) to $12 from $17, Luminar Technologies (LAZR) to $9 from $12, Velodyne Lidar (VLDR) to $1.50 from $2.00,
See Seeking Alpha Quant Ratings across the automobile sector.
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