The electrification of transportation is one of the major trends of this century. Despite the COVID-19 pandemic-led economic setback, the electric vehicle industry has been one of the best performing industries over the past year, as evidenced by the Global X Autonomous & Electric Vehicles ETF’s (DRIV) 90.8% returns over this period.
The new U.S. Presidential administration’s clean-energy ambitions are likely to lead to the imposition of stricter emissions standards for vehicles. This, along with government incentives for manufacturers and consumers to go carbon-free, may speed up the shift toward zero-emissions light- and medium-duty vehicles. So, an investor could reasonably expect solid returns from betting on appropriate EV stocks.
However, because the industry is becoming over-crowded with new players that are trading at lofty valuations that too often lack fundamental support, investors must be judicious in selecting stocks in the sector.
Against this backdrop, we think it wise to bet on little-known EV stocks Lear Corporation (LEA) and ABM Industries Incorporated (ABM).They are fundamentally sound and have plenty of upside.
Click here to checkout our Electric Vehicle Industry Report for 2021
Lear Corporation (LEA)
Based in Michigan, LEA is a global automotive technology leader in seating and e-Systems. The Company supplies seating, electrical distribution systems and electronic modules, as well as related subsystems, components and software, to automotive original equipment manufacturers (OEM). LEA serves primarily the automotive and light truck market.
Last month, Xevo, a part of Lear Corporation, and CITGO entered into a formal agreement to connect consumers with more than 4,500 CITGO-branded retail locations through an in-vehicle CITGO app. This will enable consumers to interact with popular brands through embedded ordering and transactions via the in-vehicle device. Also last month, LEA was named to FORTUNE magazine's "World's Most Admired Companies" list for the fifth consecutive year. This recognition highlights the quality of LEA’s management and leadership and their focus on innovation, social responsibility and global competitiveness. This accolade recognizes the company’s commitment to providing its customers quality products, service and value as a long-term investment.
LEA’s net sales have increased 8.8% year-over-year to $5.24 billion in the fourth quarter, ended December 31 Its sales were primarily by new business in both segments. Its core operating earnings has increased 36.7% from the year-ago value to $329.70 million, while its adjusted net income has risen 37.7% to $221.30 million over the same period. Its adjusted EPS has improved 38.6% year-over-year to $3.66 over the three-month period.
Analysts expect LEA’s revenues to grow 11.2% year-over-year to $4.96 billion in the current quarter (ending March 31, 2021). A consensus EPS estimate of $3.01 for the first quarter represents a 46.8% improvement from its year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 39% over the past six months.
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 POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
LEA has a B grade for Momentum, Value and Growth. Of 69 stocks in the A-rated Auto Parts Industry, the stock is ranked #37.
In total, we rate LEA on eight different levels. Beyond what we’ve stated above, we have also given LEA grades for Stability, Sentiment and Quality. Get all the LEA ratings here.
ABM Industries Incorporated (ABM)
ABM is a leading provider of integrated facility solutions. The company’s comprehensive capabilities include janitorial, facilities engineering, parking, custodial, landscaping and ground, and mechanical and electrical services. It also engages in vehicle maintenance and other mission critical aspects, provided through stand-alone or integrated solutions. ABM delivers services in urban, suburban and rural areas to properties of all sizes--from schools and commercial buildings to hospitals, data centers, manufacturing plants and airports.
Last month, ABM joined forces with ASM Global (ASM) and other partners to execute on ASM’s industry leading VenueShield program. The company will lend deep subject matter expertise to support ASM’s proprietary program, which will support the continued reopening of more than 325 ASM venues and client partners worldwide. This should l enable ABM to extend its footprint in the venue management and services industry.
ABM’s operating profit has increased 10.2% year-over-year to $73 million in the fourth quarter, ended October 31, 2021. Its adjusted EBITDA margin has improved 58 basis points from its year-ago value to 6.2%, while its free cash flow has risen 42% to $189.60 million over the same period. Its EPS has improved 9.9% year-over-year to $0.78 over the three-month period.
Analysts expect ABM’s EPS to rise at a CAGR of 16% over the next five years. A consensus EPS estimate of $0.59 for the about-to-be-reported quarter (ended January 31, 2021) represents a 51.3% improvement from its year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three out of the trailing four quarters. The stock has gained 12.1% over the past six months.
ABM POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our ratings system. ABM has a B grade for Stability and Value. The stock is ranked #14 of 53 stocks in the Outsourcing - Business Services Industry. And this industry is rated B.
Click here to see the additional POWR Ratings for ABM (Sentiment, Momentum, Quality, and Growth).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Click here to checkout our Electric Vehicle Industry Report for 2021
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LEA shares were trading at $171.00 per share on Wednesday afternoon, up $1.23 (+0.72%). Year-to-date, LEA has gained 7.53%, versus a 2.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.
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