This Billionaire Is Bullish On The Auto Industry

SAC CAPITAL ADVISORSVisteon Corporation (NYSE:VC) saw billionaire hedge fund manager Steven Cohen increase his firm’s stake in the stock last week. In a 13G filing, SAC Capital announced that it had increased its stake in the company over 40% from 1.8 million shares to 2.6 million shares. SAC Capital now owns around 5% of Visteon, which makes it the largest shareholder among funds we track. Cohen founded SAC Capital in 1992, and the hedge fund employs both fundamental and quantitative approaches; check out all of Cohen’s picks.

Visteon is the global supplier of various products to the auto industry, from electronics, lighting to climate control. Prior to SAC Capital’s announcement, the company had released 2012 guidance that was moved to the upper end of its previous range on better than expected auto sales. Driving, no pun intended, global auto sales is expected to be North American consumers. As well, the rising prosperity in China will further boost demand.

Other notable auto parts and components companies include Delphi Automotive PLC (NYSE:DLPH), Lear Corporation (NYSE:LEA), Johnson Controls, Inc. (NYSE:JCI) and Dana Holding Corporation (NYSE:DAN). Delphi is the global vehicle components manufacturer for electrical, power train, and safety solutions. Delphi posted 3Q results in line with the industry, but lowered its outlook. Despite this fact, the company expects to spend $250 million to finish integration of its FCI Group (Motorized Vehicle Division), which is expected to allow the company to recognize $80 million in cost savings in 2013.

Lear is a supplier of automotive seats systems and electrical distribution systems. The company trades in line on a P/E basis with its historical average and showed continued weakness in European production, but did give 2012 guidance on the high end. The company’s industry outlook showed that North America would continue to be strong, with expected units increased by 4% from the prior outlook. The big headwind for the company is that the majority of its revenues are derived from Europe, which was 50% of its top line in 2011. The region expects to see further sluggishness, and will understandably be a drag on the company.

Johnson Controls is the auto interior company, including batteries and heating systems, with strong expected revenue growth in 2013 of 7.5%. The company also pays the highest dividend of the auto parts players listed at a 2.7% yield. The company’s revenue growth should come as a part of increased global battery demand. Johnson Controls plans to purchase assets of A123 Systems out of bankruptcy, which should help diversify the company even more with respect to geography, products and customers, given that it has had virtually no competitive overlap.

Dana Holding provides drive line products—axles and transmissions—and service parts for autos. Dana posted 3Q EPS of $0.37, compared to estimates of $0.45, but is still expected to see 2012 EPS up 17% from 2011. The company’s fundamental products used in a variety of vehicles should continue to see strong demand, as exhibited by the company’s expected 5-year growth in earnings of 30% annually. Meanwhile the company trades relatively cheap at a PEG of only 0.6 and at a forward P/E of 7x.

Although Delphi saw its top fund owners downsizing their 1Q positions, the company saw the most interest from big names, including John Paulson, Third Point and David Einhorn with over 3% of their 2Q 13F invested in Delphi. Also, Delphi was a Silver Point Capital top pick, which had over 60% of their 13F invested in the auto parts company.

Other notable funds besides SAC Capital invested in Visteon were Jana Partners and Solus Alternative Asset Management, which both owned over 2.4 million shares at the end of 2Q. Visteon made up over 18% of Solus’ 2Q 13F at the end of June, and was also a Centerbridge top pick. Check out all the funds invested in Visteon.

Visteon saw the vote of confidence from SAC Capital and now trades north of 40x earnings, whereas the company we consider the top pick in the industry, Delphi, trades at a P/E of only 9x. As well, Delphi boosts some of the best growth prospects that should excel the company’s earnings at 15% annually over the next five years.

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