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3 Lesser-Known Electric Vehicle Related Stocks with Buy Ratings

With rising concerns about climate change, the electric vehicle (EV) industry has been seeing unprecedented growth. In fact, many analysts believe that most EV stocks are now significantly overvalued and have entered bubble territory. While it is true that the well-known players in the sector are trading at lofty valuations, lesser-known EV-related companies like Magna International (MGA), Lear Corporation (LEA), and ABM Industries (ABM) still have plenty of upside. So, let’s take a closer look at these three names.

The EV industry has been one of the most coveted industries by potential participants over the past year. Ambitious companies have been working assiduously on disruptive technologies and on producing cost-effective vehicles with the sector’s huge, revolutionary potential in mind.  With rising awareness regarding climate change worldwide, and with  government investments and incentives in the field, EV sales have been rising over the past year. Indeed, some of the largest EV markets in Europe reported year-over-year increase in electric vehicle sales in 2020 despite a slump in the overall automobile industry.

However, the bullish EV market outlook has encouraged some investors to pour funds into this industry without necessarily considering deeply the financials and profitability of individual companies. While the stocks of many start-ups are currently surging based exclusively on investor optimism absent vehicles in the market or in the pipeline, even industry leaders such as Tesla, Inc. (TSLA) have been consistently reporting low profitability and earnings despite surging revenues.

Overall, most of the well-known EV players are trading at high valuations irrespective of their fundamental strength. However, many lesser-known EV-related companies have been making significant progress in their product pipelines and witnessing modest price gains. Magna International, Inc. (MGA), Lear Corporation (LEA), and ABM Industries Incorporated (ABM) are three such stocks that we think have significant growth potential in the coming months.

Click here to check out the Electric Vehicle Industry Report for 2021

Magna International, Inc. (MGA)

Headquartered in Aurora, Canada, MGA is a mobility technology company that develops, manufactures, engineers, supplies and sells automotive products. The company operates mainly through four segments — Body Exteriors & Structures, Power & Vision, Seating System and Complete Vehicles. The company serves OEMs and automobile manufacturers.

This week, MGA  announced the construction of a new manufacturing facility in St. Clair, Michigan, where battery enclosures are expected to be built for General Motors Company’s (GM) new GMC Hummer EV. And in January, MGA confirmed  a collaboration with Fisker to develop an Advanced Driver Assistance System (ADAS) and a suite of software packages powered by a scalable domain controller architecture.

MGA also announced a joint venture with LG Electronics in December, tentatively named LG Magna. The venture will  manufacture e-motors, inverters and on-board chargers and, for certain automakers, related e-drive systems to support the growing global shift toward vehicle electrification.

For the fourth quarter ended December 31, 2020, MGA’s  net sales increased 12.5% year-over-year to $10.57 billion, driven  primarily by a 4% year-over-year increase in the production of global light vehicles. The company’s net income for the fourth quarter was reported to be $738 million, which represents an improvement of 67.7% on a year-over-year basis. Its non-GAAP EPS has increased 100.7% year-over-year to $2.83. Moreover, its  non-GAAP EBIT increased 85.6% year-over-year to $1.09 billion.

A consensus EPS estimate of $1.59 for the quarter ending March 31, 2021 represents an improvement of 84.9% year-over-year. Also, MGA surpassed the consensus EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $10.17 billion for the quarter ending June 30, 2021 represents a 145.5% rise on a year-over-year basis. The stock has a lower valuation thanks its peers, with a non-GAAP forward price/earnings of 11.79x, which is 38.9% lower than the industry average 19.26x.

The stock has gained 66.5% over the past year to close yesterday’s trading session at $85.83.

MGA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

The stock has a B grade for Quality, Value and Sentiment. We have also graded MGA for Stability, Growth, and Momentum. Click here to access all of MGA’s ratings.

MGA is ranked #9 of 68 stocks in the A-rated Auto Parts industry.

Lear Corporation (LEA)

Founded in 1917, LEA is a supplier to the global automotive industry. The company operates primarily  through two segments — Seating and E-Systems. LEA  is engaged in supplying seating, electrical distribution systems and electronic modules, as well as related subsystems, components and software, to automotive manufacturers.

The company announced a quarterly cash dividend of $0.25 per share payable on March 23, 2021. This month,  CITGO and Xevo, a part of LEA and a global leader in connected car software, announced that they have agreed to enable consumers with more than 4,500 CITGO-branded retail locations through an in-vehicle CITGO app. In January, Cerence Inc. (CRNC) and Xevo announced a strategic collaboration to deliver Cerence Pay conversational AI-powered contactless payment capabilities into vehicles via the Xevo Market commerce and services platform.

Also in January,  LEA announced that its Xevo software business had partnered with GrubHub Inc. (GRUB) to deliver safer, contactless food ordering capabilities in FCA vehicles via an app on the Uconnect Market connected services platform.

For the fourth quarter ended December 31, 2020, the company’s net sales increased 8.8% year-over-year to $5.24 billion. Its net sales from the North America region increased 13.2% year-over-year to $1.97 billion, while its net sales from Asia increased 6.3% year-over-year to $1.13 billion. The company’s net income for the fourth quarter was reported to be $201.6 million, which represents an improvement of 60% year-over-year. Its adjusted EPS has increased 38.6% year-over-year to $3.66.

A consensus EPS estimate of $3.00 for the quarter ending March 31, 2021 represents an improvement of 46.3% year-over-year. Moreover, LEA surpassed the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $5.15 billion for the quarter ending June 30, 2021 represents a 138.7% rise from the same period last year. LEA’s non-GAAP forward price/earnings of 12.11x is 37.1% lower than the industry average  19.26x.

The stock has gained 42.3% over the past year and closed yesterday’s trading session at $169.79.

LEA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

The stock has a B grade  for Growth and Value also.  We have also graded LEA for Stability, Sentiment, Quality, and Momentum. Click here to access all of LEA’s ratings.

LEA is ranked #31 in the same industry.

ABM Industries Incorporated (ABM)

Headquartered in New York, ABM provides integrated facility solutions in the United States and internationally. The company operates through five segments — Business & Industry, Technology & Manufacturing, Education, Aviation, and Technical Solutions. The company provides janitorial, facilities engineering, parking, custodial, landscaping and ground, and mechanical and electrical services as well as vehicle maintenance and other services to rental car providers.

ABM announced this month that it had joined forces with ASM Global,  the world’s leading venue management and services company, to execute on ASM’s industry leading VenueShield program. Last November expanded  its partnership with JFKIAT, the operator of Terminal 4 at John F. Kennedy International Airport, to include the company’s ABM EnhancedClean.

ABM  is scheduled to release its financial results for the fiscal 2021 first quarter (ended January 31, 2021) on March 9 after the market closes. ABM’s total revenue for the fourth quarter ended October 31, 2020 was $1.48 billion, up 6.5% sequentially. The company’s net income increased 10.9% year-over-year to $53.10 million. Its adjusted EPS increased 4.5% year-over-year to $0.69. Its free cash flow was reported to be $189.60 million, up 42% year-over-year.

A consensus EPS estimate of $0.59 for the quarter ended January 31, 2021 represents an improvement of 51.3% year-over-year. Moreover, ABM has surpassed the consensus EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $6.22 billion for the fiscal year 2022 represents a 3.2% rise from the same period last year. The stock’s non-GAAP forward price/earnings of 17.66x is 19.5% lower than the industry average  21.94x.

The stock has gained 34.2% over the past nine months and closed yesterday’s trading session at $43.73.

ABM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

The stock also has a B grade for Value. We have graded ABM for Growth, Stability, Sentiment, Quality, and Momentum also. Click here to access all of ABM’s ratings.

ABM is ranked #11 of 52 stocks in the A-rated Outsourcing – Business Services industry.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Click here to check out the Electric Vehicle Industry Report for 2021

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MGA shares were unchanged in after-hours trading Wednesday. Year-to-date, MGA has gained 22.63%, versus a 4.78% rise in the benchmark S&P 500 index during the same period.



About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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