Why BorgWarner Is a Company to Watch
Poor BorgWarner (NYSE: BWA)…
With the major market averages hitting new highs – seemingly on a daily basis – this engine parts maker from Auburn Hills, Michigan, has been overlooked and underappreciated all year long.
And no wonder. It makes “solutions for combustion, hybrid and electric vehicles worldwide.”
In other words, BorgWarner manufactures all of the boring components found inside engines – crankshafts, sprockets, four-wheel drive chains and hybrid power transmission chains.
I admit, it’s certainly not a page-turner to read about what the company makes, which is most likely why it’s currently flying under the radar of every analyst.
But today I’m here to tell you that BorgWarner could be one of the best bargains on the market.
Here’s the deal…
BorgWarner operates under two groups: Engine and Drivetrain.
The Engine Group develops turbochargers, hybrid power transmission chains, instant starting systems, coolant pumps, cabin heaters, battery chargers and ignitions.
The Drivetrain Group develops clutch modules, separator plates, transmission bands, electrohydraulic solenoids, rear-wheel drive and all-wheel drive transfer case systems, hybrid electric motors, and uninterrupted power source systems.
Historically, BorgWarner has been a maker of parts for standard, gasoline-fueled engines. But lately, the company has been transitioning into the hybrid market, which could represent the future of its auto parts supply operation.
During this transition period, BorgWarner has been drifting lower. Last week, it reported flat sales and lower guided margins. As a result, shares continued to decline.
As you can see below, BorgWarner is down 17% over the last 52 weeks – compared with a 7% rise on the S&P 500.
However, if you look at BorgWarner’s numbers, you’ll see that it could potentially be one of the cheapest stocks right now. With a market cap of $7.86 billion and a book value per share of $21.28, BorgWarner currently carries a forward price-to-earnings (P/E) ratio of 8.99.
As a way of comparison, Warren Buffett considers anything with a P/E ratio of 10 reasonably priced – even cheap. Throw in a forward annual dividend yield of 1.79%, and you can get paid to wait for an eventual BorgWarner recovery.
Action Plan: The $36 level has been a strong support area for BorgWarner. As a medium-term play (meaning six months) buying around this support level could represent one of the best “buy low” opportunities this market is offering right now. For more insight into opportunities like this and so much more, join The War Room, where members continue to cash in every single day. Here’s what some members said this morning…
“Sold Garmin calls for 130%.” – Richard Z.
“Great calls back to back, Bryan! Thanks!” – Rick R.
“I got in almost at the closing yesterday at $3.22, out at $5.46.” – Abreu
“Garmin, in at $3.36 and out at $5.55 – 65% return, great trade. Two big winners in two days thanks to Bryan.” – Richard T.
“Thanks, Bryan. This was my first day trading. I paid $2,600 for the privilege and made $2,800 on Ingersoll-Rand calls and the Under Armour strangle. Wow! I hope this isn’t beginner’s luck. We’ll find out. I just bought strangles in Amgen and Garmin.” – Stafford B.
“68% gain on the Under Armour strangle. Thanks, Bryan!” – Nick
About Bryan Bottarelli
Bryan graduated with a business degree from the highly rated Indiana University Kelley School of Business, and his first job out of college was trading stock options on the floor of the Chicago Board Options Exchange. He was mentored by some of the country’s top floor traders in the heart of the technology boom from 1999 to 2000, where he learned to identify and implement some of his most powerful trading secrets. Now he shares his secrets with a group of elite traders. We will be republishing some of his highly sought after content from his free e-letter, Trade of the Day.