The fortunes of the US auto industry might be in doldrums with sales having peaked and falling on a year-on-year basis, but this hasn’t had any impact on auto parts suppliers. Shares of most auto parts suppliers have registered solid gains this year and some of them are trading close to their lifetime highs. With analysts continuing to remain bullish on the industry as a whole and routinely raising their estimates, this bull run is expected to last much longer. However, amid all the gains, this rally across the sector has also made it increasingly difficult for investors to differentiate between the good and the not so good stocks within the space. To solve that problem and to help our readers in selecting the appropriate stocks for their portfolios, we at Insider Monkey have made a list of auto part suppliers based on their popularity at the end of second quarter among the 750 hedge funds tracked by us. In this post, we will reveal the names of the five stocks that topped our list and will analyze their performances thus far in 2016.
We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).
#5 Johnson Controls Inc (NYSE:JCI)
– Hedge Funds with Long Positions (as of June 30): 32
– Value of Hedge Funds’ Holdings (as of June 30): $1.09 Billion
The fifth spot in our list is taken by Johnson Controls Inc (NYSE:JCI), whose ownership among hedge funds covered by us increased by five during the second quarter , while the aggregate value of their holdings in it rose by $441 million. Johnson Controls Inc (NYSE:JCI)’s stock suffered a big decline in the second-half of 2015. However, it has managed to recoup some of that loss this year and is currently trading up by 11% year-to-date. The company recently completed its merger with Tyco International, which was announced in January, and is currently in the process of spinning off its automotive parts business into a separate publicly traded entity named Adient. In a press release issued last month, Adient revealed that it plans to achieve $17 billion in annual revenues in fiscal year 2017, which will be its first year as an independent company. Moreover, it expects the annual revenues to grow at a healthy rate once it is free from capex constraints tied to being housed within JCI.
#4 Allison Transmission Holdings Inc (NYSE:ALSN)
– Hedge Funds with Long Positions (as of June 30): 34
– Value of Hedge Funds’ Holdings (as of June 30): $1.84 Billion
Allison Transmission Holdings Inc (NYSE:ALSN) is the only stock covered in this list that saw its ownership among hedge funds covered by us fall (by four funds) during the second quarter. Nevertheless, the aggregate value of hedge funds’ holdings in the company during that time saw a meager increase of 2.27%. Shares of the Indiana based company were in a consistent decline last year, but changed their course in February this year and are currently trading up by 7% for 2016. Allison Transmission Holdings Inc (NYSE:ALSN) currently pays a quarterly dividend of $0.15 per share, which translates into an annual dividend yield of 2.17%. Despite last year’s heavy decline, most analyst don’t think that the stock is still trading at a significant discount to its fair value. However, they continue to remain optimistic on the stock citing greater adoption of automatic transmissions in the international markets over the next decade. On September 30, analysts at Credit Agricole SA started coverage on the stock with an ‘Outperform’ rating and $31 price target.