In light of the strengthening automotive market, those that supply the auto OEMs are some of the better situated companies currently. Certainly, auto sales have a reverberating effect on the entire economy that benefit many sectors from auto parts to navigational system makers to upholsterers. Along those lines, a greater proportion of vehicle content is now electronic or semiconductor-based. Numerous companies, including existing manufacturers and electronics contractors, are looking to capitalize on the opportunity.
TE Connectivity Ltd. (NYSE:TEL) – Auto business is a driving force
TE Connectivity Ltd. (NYSE:TEL) attributes 39% of its revenue to automotive customers and this percentage is likely growing. Products include motor management systems, body electronic applications, safety systems, chassis systems, security systems, and other devices that regulate vehicle functions. In all, TE is putting substantial resources into its auto-product lines in anticipation of market growth.
Revenue and margins in its transportation solutions segment are expanding behind a moderately improving auto market, as well as the increased content per vehicle as previously discussed. In addition to North America, TE Connectivity Ltd. (NYSE:TEL) is making strides in China, where auto revenue grew 20% year-over-year last quarter.
Along with auto, TE Connectivity Ltd. (NYSE:TEL) serves a variety of industries, most prominently telecom and telecom networks, where business has been weakening of late. It recently acquired a military/aerospace supplier, Deutsch, and this should also benefit its transportation unit’s results.
Given positive demand trends in global auto sales and industrial transportation, TE Connectivity Ltd. (NYSE:TEL) should enjoy a solid second half of 2013 and beyond. The shares also offer a decent yield of around 2.2%, and are a worthwhile choice for long-term total return.
Cognex Corporation (NASDAQ:CGNX) – Counting on rising capital spending by automakers
Cognex Corporation (NASDAQ:CGNX) amaker of machine vision products that capture, analyze, and ID products, is more tied to investments in technology by auto manufacturers and other OEMs. Automotive has become the largest customer group within its key factory automation end market. Its products allow producers to lower costs, as well as improve quality and meet stricter regulations.
Offerings include vision systems that inspect and identify parts, industrial ID readers, vision sensors, and software that supports these processes. Cognex is realizing rapid growth in sales of ID products. Moreover, its gross margins are impressive, at more than 75%.
Prospects for increased adoption of Cognex Corporation (NASDAQ:CGNX)’s products by automakers are good, and the company is aiming to capitalize through R&D investments. One example of this is its 3-D vision systems that may also be utilized by the electronics and food and beverage industries. The investment of 10% to 15% of revenue on R&D should help keep Cognex Corporation (NASDAQ:CGNX) at the forefront of its market and to maintain elevated gross margins.