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U.S. automakers are back, baby.

And so are their stocks.

December vehicle sales in the U.S. climbed to a 12.5 million unit annual rate. That’s without help from “Cash for clunkers” or any other government subsidy program. And with relatively restrained incentives from the automakers themselves.

For the month General Motors saw sales climb by 8.5% from December 2009 and Ford saw sales grow by 6.8%. General Motors retained a leading 19.6% share of the U.S. market and Ford jumped over Toyota to take the No. 2 slot with a 16.6% share. For the full year General Motors saw a 6.7% climb in sales and Ford’s sales grew by 15.2%.

No wonder the price of Ford soared in 2010—up 67.9%. General Motors only emerged from bankruptcy this year. The company’s November 10 IPO (initial public offering) closed at $34.19 on its first day of trading. From that close to the close on January 6, the shares were up 13.8%

But looking ahead, if in 2011 you really want to leverage the recovery in auto sales, shares of General Motors and Ford aren’t the best stocks to own. To get the most mileage from the auto industry, to really turbo charge your returns, to … well, you get the idea, look to the shares of auto industry suppliers.

These shares have four things going for them. That’s three more advantages than the Big 2 U.S. automakers have on their side.

First, the recovery in auto sales that’s also such good news for General Motors and Ford. If the auto industry is going to sell 13.5 million vehicles in the U.S. in 2011, auto suppliers are going to sell a lot of mirrors, auto interiors, turbo chargers, and braking systems too.

Second, the continued consolidation of suppliers means that the best and the biggest will get bigger. In 2004 Ford sourced the stuff it needed to build its cars from 3,300 different suppliers. By 2009 that figure was down to 1,650 suppliers and of those only 850 were eligible for new work. The goal at Ford is to reduce the number of suppliers to 750. Any company that survives that winnowing will wind up doing more business with Ford. Similar processes are at work at General Motors—and indeed at auto suppliers around the world.  

Third, new rules for increasing fuel efficiency and higher interest in new safety figures are boosting sales for the suppliers who specialize in these technologies. A big hunk of the higher prices that these changes will create will go to suppliers and not the automakers themselves.

And fourth, the biggest and best of these suppliers aren’t captive to the U.S. automakers. During the troubles in Detroit, they expanded their business outside the United States. And now, frankly, many of these suppliers don’t care much what car companies win the global competition since they do business with them all. So for example, in 2000 66% of Borg Warner’s (BWA) sales came from North America. In 2009 only 28% of sales are from the North America, 56% are from Europe, and 16% from Asia. The company’s biggest current customers are Ford and Volkswagen. In January 2009 BorgWarner formed a joint venture with China Automobile Development United Investment Co., a consortium of 12 leading Chinese automakers representing about 90% of domestic passenger car production in China. The joint venture is scheduled to begin producing dual clutch transmission modules in 2011.

Okay, so what supplier do I like for 2011. In alphabetical order they are

BorgWarner (BWA) is, in my estimation, the leader in turbochargers and dual-clutch transmission, and a big winner from consolidation in among auto suppliers. (For example, the company is Ford’s global turbocharger supplier for all its 4-cylinder engines. BorgWarner’s product portfolio gives it big exposure to efforts to increase fuel efficiency and reduce emissions and has invested during the downturn in new power train technologies to improve fuel economy. The shares sell for a forward price to earnings ratio of 18.2 but that is cheap on Wall Street’s projections of 32% growth in earnings per share in 2011.

Gentex (GNTX) is an auto mirror specialist that produces automatic-dimming rearview mirrors and mirrors that incorporate rear-view cameras that expand what drivers can see behind their cars. It’s this last that promises the biggest boost to Gentex sales because on December 3 the National Highway Safety Administration announced plans to require rearview cameras in all cars by 2014. That proposal isn’t final yet—and the stock has spiked on the speculation—but the rules would certainly add to a recovery in mirror demand from a 2009 low of 3.1 million exterior mirrors and 8.6 million interior mirrors. 2006 sales were 4 million exterior mirrors and 9.4 million interior mirrors. Standard & Poor’s believes that the company has about an 80% share of the auto-dimming rearview mirror market. The shares trade at a forward price-to-earnings ratio of 28.75, thanks to the spike on the proposed rearview camera rule. Wall Street analysts put 2011 earnings per share growth at 14.3%.

Johnson Controls (JCI) gives you exposure to auto batteries—both the traditional lead and the batteries for the hybrid market—and to auto interiors (The company also owns an energy equipment and management unit that should kick into high gear with any resumption in residential and commercial construction.) Auto interiors accounted for 48% of sales in the fiscal year that ended in September 2010. The interiors unit has picked up business during the downturn as more automakers decided to buy seats rather than make them in-house and as Johnson Controls expanded into Europe and China. Batteries account for about 14% of sales and the company has a 36% share of the traditional lead battery market. Its recent acquisition of Delphi’s battery business substantially boosted the company’s position in China. In 2009 the company formed a joint venture with Saft of France to produce lithium ion batteries for hybrid and electric cars. The stock trades at a forward price to earnings ratio of just 13.5 on Wall Street projections of 19% earnings per share growth in 2011. Johnson Controls is a member of both my 12-18 month Jubak’s Picks portfolio and my long-term Jubak Picks 50 portfolio

Magna International (MGA) still has its Asia expansion ahead of it—about 47% of sales came from North America in 2009 and 49%from Europe. Within those markets the company supplies everybody: General Motors, BMW, Ford, Volkswagen, Daimler, and Fiat/Chrysler each accounted for better than 10% of Magna’s sales. Because of that lack of an Asia presence and worries about Magna’s exposure to Fiat/Chrysler, the stock trades at just 12.6 times projected 2011 earnings per share on projected growth of 10.3%. If you’re looking for a “pure play” among suppliers on the turnaround in the U.S. market, Magna is a good way to go.

TRW Automotive Holdings (TRW) gets about 25% of its sales from auto safety systems, one of the sectors that I see growing faster than the auto industry as a whole over the next few years. (About 60% of 2009 sales cane from chassis systems.) Sales in North America were just 25% of revenue in 2009 with Europe accounting for 58% and Asia 12%. The shares trade at a bargain 9 times projected 2011 earnings per share because Wall Street is so pessimistic on the company’s prospects. The consensus analyst estimate calls for just 4.1% earnings growth in 2011. That’s such a low bar that I expect TRW to be able to beat it easily. Standard & Poor’s is calling for revenue growth of 11% in 2011 and earnings per share growth of 6% for the year. 6% may not sound like much, but when the consensus is calling for just 4%, it represents a 50% positive surprise.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Johnson Controls as of the end of November. For a full list of the stocks in the fund as of the end of November see the fund’s portfolio at  I’ll have the fund’s portfolio as of the end of December posted in a few days.