Another Strong Auto Play

In Monday’s Goldman Guide we reiterated our strong buy stance on the automotive and semiconductor sectors.  Back in early May we highlighted Stoneridge, Inc., (NYSE – SRI - $11.95) a high tech automotive supplier that designs and manufactures engineered electrical and electronic components, modules, and systems for cars and trucks, farm machines, motorcycles and off-highway vehicles.  The company is an international player with customers in North America, South America, and Europe.  SRI is up over 56% since then.  We think this is still one to keep.

Another stock that looks like it could make a run in our world is Meritor, Inc. (NYSE – MTOR - $7.12).  The company is a tier I supplier to OEM and aftermarket customers in commercial vehicles, transportation, and industrial sectors.  The company operates and sells its products in North America, South America, Europe, and Asia.  MTOR produces a variety of products including drivetrain systems comprising axles, brakes, drivelines, and suspensions for off-highway, military, construction, bus and coach, fire, emergency, and other industrial applications under the brands Meritor, Meritor Wabco, Euclid, Trucktechnic, and Mascot Truck Parts.

The company continues to innovate with new products and improve its existing product line.  In early in June, the company received the 2012 Excellence in Quality Award from Hino Motors Manufacturing U.S.A., Inc. Meritor WABCO has been recognized for this prestigious award three times in the past five years.

The future earnings picture also looks bright.  MTOR has a trailing 12-month P/E over 23 versus a forward 12-month P/E of just over 10, a strong indication of future value.  EPS for 2013 is estimated to come in at $0.31 and $0.67 in 2013 and 2014 respectively. 

Although the stock has climbed nearly 60% since late April, the technical analysis is still very bullish, especially in our old favorites, EMA and MACD.  We think the stock can climb to over $9.00 by the end of 3Q13.

Have a great day.

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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