Analysts love these auto supply stocks.
Electric and autonomous vehicle stocks like Tesla (ticker: TSLA) and NIO (NIO) have been among the hottest stocks in the market in the past couple of years as investors recognize the potential long-term opportunity in the next-generation global auto industry. But while Tesla, NIO and others sell the finished products, there are plenty of companies both inside and outside the auto industry that will be building the technology and components going under the hood. Bank of America recently compiled a list of top next-generation auto supplier stock picks. These seven companies will help build the cars of the future.
Magna International (MGA)
Magna is a diversified global auto supplier that produces components ranging from interiors to engine parts to trim and mirrors. Analyst John Murphy says Magna is one of the best-positioned auto suppliers for the long-term, thanks to its proprietary technology, its flexibility, its diversification and its strong relationship with automakers. Magna also navigated a difficult 2020 landscape masterfully from a financial standpoint. The company’s recent strategic agreement with EV startup Fisker (FSR) is just one example of what the future may hold for Magna, Murphy says. Bank of America has a “buy” rating and a $105 price target for MGA stock.
Nvidia Corp. (NVDA)
Semiconductor giant Nvidia has been one of the best long-term investments in the market, and its stock is up more than 1,600% in the past five years. Nvidia has significant exposure to many of the largest long-term growth opportunities in tech, including advanced automobile technology. Analyst Vivek Arya says Nvidia is the market leader in the auto compute stack. Nvidia has more than 370 auto industry partnerships, and Arya says auto software and self-driving cars will be a $60 billion market by 2035. Bank of America has a “buy” rating and an $800 price target for NVDA stock.
NXP Semiconductors NV (NXPI)
NXP Semiconductors supplies chips and software for consumer electronics, automobiles, wireless networks and other applications. Arya says NXP has the most exposure within the semiconductor space to a recovery of global auto sales. Also, he says NXP is the leading supplier for advanced driver assistance systems, battery management systems and in-vehicle connectivity. NXP’s auto business coupled with its exposure to 5G wireless infrastructure and the industrial Internet of Things will drive 12% annual sales growth and 25% annual earnings-per-share growth through 2023, Arya says. Bank of America has a “buy” rating and a $240 price target for NXPI stock.
ON Semiconductor Corp. (ON)
ON Semiconductor produces power and data management chips used in electronics, appliances and automobiles. Arya says ON is well positioned to potentially double its 2020 EPS to $3 in the long term, thanks to an increase in margins from 39% to a record 43%. He says ON is a market leader in power semiconductors, image sensors and lidar sensors — all of which will be critical in next-generation autos. Arya projects ON’s EV and advanced driver-assistance systems markets will grow at least 20% annually over the next four years. Bank of America has a “buy” rating and a $48 price target for ON stock.
Sensata Technologies Holding (ST)
Sensata Technologies specializes in producing customized components and controls such as air conditioning, braking and exhaust systems. Analyst Wamsi Mohan says Sensata is also expanding its electrification solutions to meet the evolving demands of the auto industry. Mohan says Sensata has roughly 20% more content per EV than per internal combustion vehicle. In fiscal 2020, EV content accounted for 5% of the company’s auto revenue and 3% of its total revenue. Sensata also has electrification opportunities in heavy vehicles, charging infrastructure, grid infrastructure and industrial automation. Bank of America has a “buy” rating and a $71 price target for ST stock.
TE Connectivity (TEL)
TE Connectivity produces electronic components and connectors. Mohan says TE produces several electrical components that are critical for EV battery management and protection. He estimates that TE will average between 50% and 100% more content in EVs than in internal combustion vehicles. The company’s content per vehicle has already risen from an average of around $60 in fiscal 2018 to the low $70 range today. Mohan says TE is working on improving EV safety, boosting vehicle autonomy and automating the EV manufacturing process. Bank of America has a “buy” rating and a $150 price target for TEL stock.
Uber Technologies (UBER)
Ride-sharing giant Uber is helping to facilitate a long-term shift to a more asset-light model for vehicle ownership, especially when it comes to major cities. As ride-sharing costs fall over time, Uber will become increasingly cost competitive with vehicle ownership, analyst Justin Post says. In December, Uber announced a new $400 million stake in autonomous vehicle technology company Aurora Innovation as part of a deal to divest its own autonomous vehicle business and focus on profitability. Autonomous vehicle technology could go a long way to reduce Uber’s labor costs. Bank of America has a “buy” rating and a $71 price target for UBER stock.
Auto supply stocks building the car of the future:
— Magna International (MGA)
— Nvidia Corp. (NVDA)
— NXP Semiconductors NV (NXPI)
— ON Semiconductor Corp. (ON)
— Sensata Technologies Holding (ST)
— TE Connectivity (TEL)
— Uber Technologies (UBER)
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7 Auto Supply Stocks Building the Car of the Future originally appeared on usnews.com
