In this article, we discuss the 7 best auto components and parts stocks to buy, along with the latest updates around the auto industry.
Auto Sector Outlook Adjusted with Focus on Innovation and Market Realities
As reported by Barron’s on September 10, Deutsche Bank analyst Edison Yu analyzed the U.S. automotive industry and gave a cautious outlook. Out of 17 car companies he reviewed, only three were rated as Buy, which is lower than usual. Yu thinks the U.S. car market is reaching the end of its growth phase after the boost it got post-pandemic. While the situation is not collapsing, he pointed out that high car prices, expensive payments, and high used car prices are making the future of new car prices less promising.
Other analysts also showed a similar sentiment as we discussed in our article about the most undervalued auto stocks to buy. Here is an excerpt from the article:
“As reported by TipRanks, Morgan Stanley recently released a report, in which in which it pointed out major changes in the automotive industry, mainly due to China’s growing production capabilities. The firm mentioned that China is now making 9 million more cars than it sells, which is shaking up competition in the Western market.
Due to this, the bank has downgraded its assessment of the U.S. auto industry from Attractive to In-Line. The change reflects rising vehicle inventories in the U.S., affordability challenges for consumers, and an increase in credit defaults among less-than-prime borrowers.
On a brighter note for car dealerships, the bank upgraded several franchise dealer stocks to Overweight.”
More Americans Owe More Than Their Cars Are Worth
A report from Edmunds.com reveals that more Americans with auto loans now owe more than their vehicles’ worth, with the average upside-down loan reaching a record $6,458 in the third quarter. This reflects rising financial strain on consumers, as delinquency rates on auto loans have also surpassed pre-pandemic levels.
While owing slightly more than a vehicle’s value isn’t necessarily critical, Edmunds noted that 22% of borrowers with negative equity owe over $10,000, and 7.5% owe more than $15,000. The issue stems largely from consumers who bought vehicles at inflated prices during the pandemic, with their values dropping as inventories recovered.
Prime Auto Loans Show Strain but Broader Crisis Unlikely
Matthew Mish, UBS head of credit strategy, recently joined CNBC’s ‘Squawk on the Street’ and highlighted growing concerns around auto loan delinquencies. While traditionally, subprime loans were the primary concern, prime loans, which represent 80-85% of auto loans, are now showing elevated delinquency levels approaching those seen in 2009. However, Mish emphasized that net losses are not increasing at the same rate as delinquencies, partly due to a trend called “churning,” where borrowers miss payments but then catch up.
Despite these concerns, he noted that auto loans only make up a small portion of household and bank debt. Mish also pointed out that consumer credit, especially auto and credit card loans, may face more challenges moving forward, but he downplayed the possibility of a broader financial crisis. He further indicated that while mortgage delinquencies are rising, they remain below historical averages, and the focus should be on consumer loans.
The bank downgraded its view on high-yield auto credit to Underweight, but Mish advised caution and noted that the data does not yet indicate a severe economic downturn.
With that, we look at the 7 Best Auto Components and Parts Stocks to Buy Right Now.
7 Best Auto Components and Parts Stocks to Buy Right Now
Our Methodology
For this article, we used stock screeners to identify over 30 auto components and parts stocks with a market cap above $300 million. We narrowed our list to 7 stocks most widely held by institutional investors. The stocks are listed in ascending order of their hedge fund sentiment, which was taken from Insider Monkey’s Q2 database of 912 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Best Auto Components and Parts Stocks to Buy Right Now
7. Garrett Motion Inc. (NASDAQ:GTX)
Number of Hedge Fund Holders: 32
Garrett Motion Inc. (NASDAQ:GTX) is a technology leader in the automotive industry that specializes in turbocharging and other advanced vehicle technologies for nearly 70 years. The company focuses on developing solutions that reduce emissions and support the shift to zero-emission vehicles and offers products such as turbochargers, electric turbos, electric compressors, and fuel cell compressors for hydrogen vehicles.
The company operates five R&D centers and 13 manufacturing facilities that are committed to advancing transportation through innovative technologies. The company entered China in 1994, becoming one of the first global companies to introduce turbocharging technology there. It operates two advanced manufacturing facilities in Shanghai and Wuhan, along with two innovation centers. The company maintains strong partnerships with over 40 global and Chinese automakers and offers a diverse range of turbocharging solutions for gasoline, diesel, natural gas, hybrid, and zero-emission battery electric vehicles.
After posting a loss per share of $0.31, Garrett Motion (NASDAQ:GTX) is expected to post an EPS of $1.16 in 2024 according to Yahoo Finance. This makes the company a very cheap stock on a forward earnings multiples basis as it trades at a forward PE ratio of 7x as of October 16, a nearly 60% discount to its sector median.
Moreover, according to the consensus opinion of two analysts, the company’s average price target of $12.50 shows nearly 53.4% upside to the company’s stock at current levels.
6. Visteon Corporation (NASDAQ:VC)
Number of Hedge Fund Holders: 33
The 6th best auto components and parts stock, Visteon Corporation (NASDAQ:VC) is a global automotive technology company that specializes in connected car solutions and focuses on improving driving experiences through digital, electric, and autonomous technologies. It serves automakers like BMW, Ford, General Motors, and Volkswagen with products including digital instrument clusters, domain controllers with ADAS, infotainment systems, and battery management systems.
It has manufacturing and engineering facilities worldwide and aligns with industry trends such as increased electronic content, the rise of electric vehicles, and autonomous driving. Its offerings include customizable instrument clusters, curved displays, Android-based infotainment, and advanced domain controllers that support applications from infotainment to ADAS and EV battery management. The company also provides high-voltage power electronics and telematics solutions, helping automakers meet consumer and regulatory demands.
On September 20, The Fly reported that Wells Fargo analyst Colin Langan raised Visteon’s (NASDAQ:VC) rating from Equal Weight to Overweight and increased the price target from $115 to $122. The upgrade is based on the company’s favorable valuation and strong growth potential.
The analyst noted that Visteon (NASDAQ:VC) stands out among competitors which are set to benefit from high growth in global original equipment manufacturers despite slower light vehicle production. Other positive factors include lower labor inflation risks, improving free cash flow, and disruptions faced by competitors.
5. The Goodyear Tire & Rubber Company (NASDAQ:GT)
Number of Hedge Fund Holders: 36
The Goodyear Tire & Rubber Company (NASDAQ:GT) is one of the biggest and oldest tire manufacturers in the world. The company operates across most regions globally and has 54 facilities in 21 countries.
It offers a wide range of tires for vehicles, including automobiles, trucks, buses, and aircraft, and markets products under brands such as Goodyear, Cooper, Dunlop, and others. In June 2021, Goodyear acquired Cooper Tire for $3.1 billion.
Goodyear’s (NASDAQ:GT) is structured into three regional segments: Americas, EMEA (Europe, Middle East, and Africa), and Asia Pacific. The company is focusing on its “Goodyear Forward” plan, launched in November 2023, which aims to optimize its portfolio and improve margins. The plan includes actions to generate over $2 billion from portfolio optimization, reduce costs by $1 billion annually by 2025, and double segment operating income margins to 10% by the end of 2025.
The company’s stock has been beaten down quite significantly this year as it has dropped by over 41%, as of October 16. However, it is now trading at a very cheap forward price-to-earnings multiple of 8.8, a nearly 50% discount to its sector median.
4. Autoliv, Inc. (NYSE:ALV)
Number of Hedge Fund Holders: 37
Autoliv, Inc. (NYSE:ALV) specializes in passive safety systems for the automotive industry. It operates through two main subsidiaries, Autoliv AB and Autoliv ASP, Inc. The company offers a wide range of products, including airbags, seatbelts, steering wheels, and advanced safety technologies like pedestrian protection and connected safety services. It takes the 4th spot on our list of auto components and parts stocks.
Its operations span 25 countries and 14 technical centers equipped with 20 test tracks. In 2023, the company’s products saved 35,000 lives and prevented 450,000 injuries. The company aims to save 100,000 human lives annually.
The company is further expanding its foot print in the flying vehicle segment. In June, Autoliv’s (NYSE:ALV) China division and XPENG AEROHT signed a strategic partnership to develop safety solutions for flying cars. The collaboration combines Autoliv’s expertise in automotive safety with XPENG AEROHT’s innovation in electric flying vehicles. The companies plan to develop the safest flying cars using advanced technologies.
On September 12, Goldman Sachs analyst George Galliers reaffirmed his Buy rating Autoliv (NYSE:ALV) as reported by TipRanks. The analyst mentioned its strong position in the European supplier market despite short-term challenges like lower volumes and market volatility.
Galliers highlighted the company’s cost-saving strategies, pricing improvements, and R&D reimbursements as key factors expected to support margins. Although earnings estimates have been slightly lowered, these measures are seen as mitigating the impact of current difficulties. He also noted that the company’s stock is attractive compared to competitors, with higher projected margins, and expects growth due to stricter global safety regulations and increasing demand for safety products. Moreover, Autoliv’s (NYSE:ALV) strong presence in China further positions it for long-term success.
3. Aptiv PLC (NYSE:APTV)
Number of Hedge Fund Holders: 38
One of the best auto components and parts stocks, Aptiv PLC (NYSE:APTV) is a technology and mobility solution that focuses on the automotive sector. The company provides end-to-end services to facilitate the shift towards electrified, software-driven vehicles. Aptiv designs and manufactures critical vehicle components, specializing in electrical, electronic, and safety technologies.
Its business is divided into two main segments: Signal and Power Solutions, which focuses on vehicle electrical architecture, and Advanced Safety and User Experience, which develops technologies for vehicle safety and user experience, including autonomous driving solutions. Aptiv operates globally with nearly 140 manufacturing facilities and 11 technical centers, serving the top 25 automotive OEMs in 50 countries. It is positioned to benefit from the industry’s shift towards safer, greener, and more connected vehicles, driven by consumer demand and regulatory trends.
Aptiv (NYSE:APTV) is investing in innovative technologies like electrification, autonomous driving, and vehicle connectivity to maintain its competitive edge in these areas.
In August, the company announced the expansion of its manufacturing facility in Orgadam, Chennai, with a focus on producing software-defined cockpit solutions. The company is investing over $45 million in engineering and infrastructure, doubling the plant’s workforce to support the production of advanced cockpit controllers, radars, cameras, and electronic control units for both Indian and global markets.
Its plant will play a key role in supporting India’s automotive industry, providing solutions to reduce complexity, improve performance, and lower costs. The expansion is part of Aptiv’s (NYSE:APTV) nearly 30-year commitment to growing its presence in India, which includes offering a range of connected vehicle technologies.
2. Lear Corporation (NYSE:LEA)
Number of Hedge Fund Holders: 40
Lear Corporation (NYSE:LEA) is an automotive technology company specializing in Seating and E-Systems. Its products include complete seat systems, key electrical components, and both low and high-voltage power distribution systems for all major automotive manufacturers. It is one of the best auto components and parts stocks to buy.
The company operates 265 locations in 38 countries, with the majority of its facilities and employees in low-cost regions. Its business is structured into two main segments: Seating, which includes complete seat systems and related components like leather and heating systems, and E-Systems, which provide advanced electrical distribution and connection systems for a wide range of vehicles, including those powered by traditional engines and electrified powertrains.
Lear (NYSE:LEA) continuously adapts to market trends by expanding its global footprint and making strategic acquisitions to enhance its capabilities. In July, the company completed its acquisition of WIP Industrial Automation, a Spanish company specializing in automation solutions using robotics and AI-based computer vision. The acquisition improves the company’s operational efficiency and help to address macroeconomic challenges like wage inflation.
It also complements previous acquisitions like ASI Automation and Thagora Technology, strengthening Lear’s (NYSE:LEA) innovation strategy under IDEA by Lear. The expansions provide the company with advanced automation technologies.
The company is also favored by analysts as the average price target of the stock among 17 analysts is $140, which represents a 33.50% upside to its stock price at current levels.
1. BorgWarner Inc. (NYSE:BWA)
Number of Hedge Fund Holders: 41
Topping our list of best auto components and parts stock is BorgWarner Inc. (NYSE:BWA), an automotive and e-mobility solutions company headquartered in Michigan. Its products improve vehicle performance, efficiency, and air quality. It primarily supplies OEMs of light and commercial vehicles, as well as aftermarket customers worldwide. The company operates manufacturing facilities across Europe, the Americas, and Asia, serving nearly every major automotive OEM.
In 2021, the company introduced its “Charging Forward” strategy to expand its EV product portfolio through investments and acquisitions. By 2027, the company aims to achieve over $10 billion in annual sales from its eProducts. As part of this strategy, the company completed acquisitions of key businesses, including Eldor’s Electric Hybrid Systems, Hubei Surpass Sun Electric’s charging business, and Drivetek AG, strengthening its EV and hybrid technologies.
In July, BorgWarner (NYSE:BWA) secured its largest North American contract for its high-voltage eFan system, designed for heavy and medium-duty BEVs from a major global OEM. Production is set to begin in late 2027. The eFan system, which includes a fan, e-motor, and integrated high-voltage inverter, delivers up to 10 kW of power and 40 Nm of torque, with options for varying power needs.
Its components are liquid-cooled for long-term reliability and offer reduced noise levels. The system supports voltage ranges from 550V to 850V and is scalable for different commercial vehicle applications, including BEVs and fuel cell vehicles.
On October 14, The Fly reported that Evercore ISI upgraded BorgWarner (NYSE:BWA) stock from In Line to Outperform and raised the price target from $39 to $43. The firm explained that despite many auto investors showing limited interest in the sector due to ongoing market volatility, its approach focuses on maintaining a defensive stance as a strong strategy.
While we acknowledge the potential of BorgWarner Inc. (NYSE:BWA) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BWA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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