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3 Top Auto Parts Stocks to Propel Your Portfolio in 2021

The auto parts industry has been in the limelight over the past year as new car sales slumped. People have been spending their money on old vehicles in a recessionary economy rather than buying new ones. Used and older vehicles require more spare parts for their maintenance. With high unemployment, depressed per-capita income, and people’s need to avoid public transportation, the auto parts industry’s growth is expected to continue, benefiting stocks such as Johnson Controls (JCI), Cummins (CMI), and O'Reilly (ORLY). Let’s do a drive by these two companies

The auto parts industry has been profiting from  declining new car sales over the past year. People are holding off on new car purchases as the economy recuperates from the COVD-19-pandemic-driven recession. Consequently, auto parts consumption hit a record $50.51 billion in June 2020.

This trend is likely to continue this year because per-capita income and employment rates are expected to rise only moderately. Most people are fixing up their old cars or buying second-hand cars instead of new ones to meet their transportation needs and  maintain social distance. The automotive aftermarket/auto care industry is expected to be valued at $388 billion in 2021.

Thus, we think auto parts companies Johnson Controls International plc (JCI), Cummins Inc. (CMI), and O'Reilly Automotive, Inc. (ORLY) could be value additions to your portfolio.

Johnson Controls International plc (JCI)

JCI is a global diversified technology and multi-industrial company focused on developing energy solutions, integrated infrastructure and transportation systems. The company provides energy efficiency solutions and technical services that include inspection, scheduled maintenance and replacement of mechanical and control systems. JCI  operates primarily through four segments—Building Solutions North America, Building Solutions EMEA/LA, Building Solutions Asia Pacific, and Global Products.

In  February, the company was  recognized by Ethisphere as one of the 2021 World's Most Ethical Companies. JCI was also named as a Clarivate Top 100 Global Innovator 2021 on February 23, 2021. JCI declared a quarterly cash dividend of $0.26 per common share that was paid on January 15, 2021. And in  December, JCI and Microsoft Corporation (MSFT) announced a global collaboration to digitally transform how buildings and spaces are conceived, built and managed.

JCI’s adjusted EBITA from the building solutions EMEA/LA segment was  $95 million for the quarter ended December 31, 2021, which represents a 5.6% rise year-over-year. Also, its adjusted EBITA from the building solutions Asia Pacific segment increased 9.7% year-over-year to $79 million, while its adjusted EBITA from the global products segment increased 4.4% year-over-year to $213 million. The company’s adjusted net income from continuing operations was  $311 million, which represents an improvement of 1.6% year-over-year. And  its non-GAAP EPS increased 7.5% year-over-year to $0.43.

A consensus EPS estimate of $0.80 for the quarter ending June 30, 2021 represents an improvement of 19.4% year-over-year.  JCI surpassed the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $24.30 billion for the fiscal 2022 represents a 4.4% gain on a year-over-year basis. The stock has gained 60.4% over the past year and closed yesterday’s trading session at $60.23.

JCI’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.

The POWR Ratings also assess stocks based on different categories. We have also rated JCI for Growth, Value, Momentum, Stability, Sentiment and Quality. Click here to access all JCI’s ratings.

JCI is  ranked #29 of 54 stocks in the A-rated Industrial - Building Materials Industry.

Cummins Inc. (CMI)

Based in Columbus, Indiana CMI designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products. The company operates through five segments—Engine, Distribution, Components, Power Systems and New Power. The Engine segment manufactures and markets a range of diesel and natural gas-powered engines for the heavy- and medium-duty truck, bus, recreational vehicle (RV), light-duty automotive and agricultural markets. CMI sells its products to original equipment manufacturers, distributors, dealers, and other customers.

On March 8, CMI announced that its ISX12N+Endurant HD N powertrain from its Integrated power portfolio was available for heavy-duty truck customers who are looking to lower emissions and improve their sustainability profile. The company also introduced the C2750D5BE on March 4, which has the lowest engine displacement in its power class and provides the highest power density and lowest footprint for its rated power output.

Daimler AG’s (DMLRY) Daimler Truck AG and CMI signed a memorandum of understanding (MOU) in February, establishing a global strategic partnership for medium-duty engine systems. Taking another step forward in the Isuzu Cummins Powertrain Partnership (ICPP), CMI and Isuzu Motors Limited (ISUZY) agreed  in  February  to a global mid-range diesel powertrain and an advanced engineering collaboration.

The company’s net sales have increased 4.5% year-over-year to $5.83 billion for the fourth quarter, ended December 31, 2020. Its sales from the components segment increased 17.6% year-over-year to $1.83 billion, while sales  from the engine segment increased 10.3% sequentially to $2.33 billion. CMI’s net income were  $501 million for the quarter, which represents an improvement of 67% year-over-year. Also, its EPS increased 70.6% year-over-year to $3.36.

A consensus EPS estimate of $3.57 for the next quarter, ending June 30, 2021, represents an improvement of 83.1% year-over-year.  CMI surpassed the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $22.19 billion for the fiscal 2021 represents a 12% gain on a year-over-year basis.

The stock has gained 87.6% over the past year and closed yesterday’s trading session at $273.13.

It’s no surprise that CMI has an overall rating of B, which equates to Buy in our POWR Ratings system. The stock has an A grade for Quality and a B for Sentiment. Click here to see the additional ratings for CMI (Value, Momentum, Stability and Growth).

Among 68 stocks in the A-rated Auto Parts Industry, CMI is ranked #29 .

O'Reilly Automotive, Inc. (ORLY)

Headquartered in Springfield, Missouri, ORLY is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. The company sells its products to both do-it-yourself (DIY) and professional service providers. Its product line includes new and remanufactured automotive hard parts, maintenance items and accessories. ORLY’s stores also offer various services and programs to its customers, such as used oil, oil filter and battery recycling electrical and module testing, loaner tool program, custom hydraulic hoses, and machine shops.

Moody's Corporation (MCO) announced the completion of its periodic review of ratings of ORLY on March 10. ORLY’s Baa1 senior unsecured rating reflects its strong credit metrics, best-in-segment operating performance, excellent liquidity, and predictable financial policy. Gregory Johnson, ORLY’s  CEO, said “As we look forward to 2021, we remain optimistic about our prospects to generate continued strong financial results”.

The company’s net sales have increased 13.9% year-over-year to $2.83 billion for the fourth quarter ended December 31, 2020. Its gross profit has increased more than 11% year-over-year to $1.47 billion. Its operating income has increased more than 21% year-over-year to $534.27 million. And its net income came in at $392.95 million, up nearly 21% year-over-year. Its EPS increased 27.1% year-over-year to $5.40.

A consensus EPS estimate of $5.24 for the current quarter, ending March 31, 2021, represents an improvement of 32% year-over-year.  ORLY surpassed the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $2.80 billion for the same quarter, ending March 31, 2021, represents a 12.9% gain on a year-over-year basis. The stock has gained 20.4% over the past year and closed yesterday’s trading session at $473.90.

ORLY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

The stock is also rated an A in Quality and a B in Momentum. In addition to the POWR Ratings grades I’ve just highlighted, you can see ORLY’s ratings for Value, Sentiment, Stability and Growth here.

ORLY is ranked #35 in the Auto Parts Industry.

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

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JCI shares were unchanged in after-hours trading Thursday. Year-to-date, JCI has gained 31.12%, versus a 5.26% 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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