A Potential UAW Strike Has Created an Opportunity in Auto Parts Stocks
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If a UAW strike happens, the impacts on automotive stocks will pass, says UBS analyst Joe Spak.
Bill Pugliano/Getty Images
Labor negotiations between the ‘Detroit Three’ auto makers and the United Auto Workers are hanging over the entire sector. A strike is likely. But that doesn’t have to mean bad things for shares of auto parts makers.
Tuesday evening, UBS analyst Joseph Spak launched coverage of several auto parts stocks. A month-long strike by the union has been “priced in,” according to the analyst.
“If a strike occurs, it too will pass,” wrote Spak. “Lost volume is transient so we don’t believe this should fully be capitalized [into stock prices] and some more attractive entry points have presented themselves for investors.”
Strikes still have impacts.
Aptiv
lost an estimated $200 million in sales during a 40-day strike against GM in 2019, writes Spak. The company generated about $14.4 billion in 2019 full-year sales. The strike impact was about 0.03% of annual sales lost per day. It’s one reference point for investors. Aptiv also lost about $110 million in 2019 operating profit. That works out to about 0.1% of its full-year total lost each day.
So a 10-day strike against all three auto makers might cost Aptiv 3% of 2023 projected operating profit of roughly $2.2 billion. Still, that money is mainly shifted into future quarters and not lost forever.
Spak rates shares of Aptiv (ticker: APTV) Buy. He also rates shares of
BorgWarner
(BWA), and
Mobileye
(MBLY) Buy. The three stocks are down about 8%, 12%, and 18%, respectively over the past two months as investors fret over labor issues.
A strike-related stock dip isn’t the only reason Spak likes shares. All three are aligned with key industry trends toward vehicle electrification and self-driving cars. Aptiv provides parts and software addressing both trends. BorgWarner provides powertrain parts for both traditional and electric vehicles. Mobileye provides systems that help cars drive themselves.
Spak expects a lot of growth for battery-powered cars. He projects global battery electric vehicle and plug-in hybrid vehicle sales will equal gasoline-powered sales by the end of the decade. That’s about 45 million units for BEVs and PHEVs combined and 45 million for gasoline-powered cars. BEV and PHEV sales totaled about 10 million units combined in 2022. Gas-powered sales totaled about 72 million units.
He is also bullish about the adoption of more advanced driver-assistance features. The market for that technology will grow at about 60% a year between 2023 and 2030, he says.
Aptiv stock is up 0.2% in premarket trading at $102.87 a share, while
S&P 500
and
Dow Jones Industrial Average
futures are both down about 0.1%. Spak’s price target is $143 a share. With the new Buy, about 78% of analysts covering the company rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target is about $129 a share.
Borg stock is up 0.4% at $41.50 a share. Spak’s price target is $52 a share. About 65% of analysts covering the company rate shares Buy. The average analyst price target is also about $52 a share.
Mobileye stock is up about 0.5% at $35.65 a share. Spak’s price target is $48 a share. About 86% of analysts covering the company rate shares Buy. The average analyst price target is also about $48 a share.
Write to Al Root at [email protected]
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