Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Some of the auto parts makers are quietly having a very good year. They have some of the better chart set ups out there, even though some are quite extended. Part of this may just be a rotation into cyclical ideas, but this WSJ story points out there is a fundamental story at play here too as high gas prices and the government push for higher MPG has benefited this group of stocks:
- At an industry conference here earlier this month, industry executives said the appetite for fuel-saving technology such as turbochargers, easy-rolling tires and advanced fuel injectors is providing a second wind for companies already benefiting from booming car sales.
- “You have a mixture of circumstances that are now converging,” said James Verrier, chief executive of turbocharger maker BorgWarner. “There is the push from the legislative mandates. But there is demand from customers, and auto makers are now marketing fuel economy and fuel efficiency as a competitive advantage.”
- BorgWarner anticipates the annual number of light vehicles in North America equipped with a turbocharger will jump to three million by 2016 from one million now. The Auburn Hills, Mich., company’s second-quarter profits rose 44% to $174.1 million, and its shares are up more than 35% over the past 12 months.
- General Motors Co.’s quest to boost the mileage on its midsize Chevrolet Malibu sedan is benefiting battery maker Johnson Controls Inc., which last week said it would supply batteries for start-stop technology that GM plans to install on its 2014 Malibus. The technology bumps up a car’s fuel economy by about 5% in city driving. Stop-start systems turn off an engine when a car is idled or stopped. The Malibu will be the first high-volume, gasoline-engine powered vehicle sold in the U.S. with start-stop standard on its lowest-price model. The system currently costs about $300 as an option. “We expect start-stop technology to be offered on 40% of the vehicles sold in the U.S. by 2018,” said Johnson Controls vice presidentRay Shemanski. “In Europe, it will be 80%.”
- Stop-start systems, turbochargers and other mileage-boosting hardware were a hard sell in the U.S. up until the last decade because U.S. fuel economy targets were little changed, and auto makers focused on selling gas-guzzling trucks and sport-utility vehicles. The environment changed dramatically during the past five years. A surge in gasoline prices in 2008 drove a shift in consumer purchases toward smaller vehicles. The Obama administration applied a regulatory push with new rules requiring car makers to boost the average fuel efficiency of their U.S. vehicles to 54.5 miles per gallon by 2025. That is more than double the 23.8 mpg average the U.S. fleet achieved in 2012, according to Environmental Protection Agency estimates.
- Take gasoline direct injection. The technology helps to produce more power from less gasoline. Two years ago there were less than five million gasoline direct-injection systems installed in vehicles world-wide. Delphi Automotive Chief Executive Rodney O’Neal said he expects the market to grow to 35 million direct-injection systems a year in the U.S. by 2020.
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Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/index.php/the-fund/holdings
