On January 11, BorgWarner (BWA) announced earnings guidance for 2011 of $3.85 to $4.15 a share.
That works out to earnings growth of 35% to 40% from the company’s projected earnings per share in 2010. Sales will grow by 16% to 20% in 2011. That’s a big comedown from the 40% sales growth the company got in 2010. But that was off a bottom in the North American auto market. The company’s projected 16% to 20% growth in 2011 is ahead of most Wall Street expectations. For example, Standard & Poor’s was looking for 12% revenue growth in 2011
The company also said that it expects 2011 operating margins of 10.5% or better. That’s an increase from the 9% to 9.5%–with an occasional peak at 10%–that BorgWarner discussed as its sustainable long-term operating margin at the time of its third quarter earnings announcement.
I laid out the case for the shares of auto suppliers in my January 10 post https://jubakpicks.com/2011/01/11/really-want-to-leverage-the-recovery-of-the-auto-industry-try-these-5-stocks-of-auto-suppliers/ and BorgWarner’s guidance pushes this stock to among the most attractive in the group.
On the guidance from January 11 the stock trades at a forward price-to-earnings ratio of 16.6 to 17.9 times projected 2011 earnings per share. That seems very reasonable for a company projecting 35% to 40% growth in earnings during the year
The stock has dropped from $73.18 on January 5 to $68.87 at the close on January 13. I think this price is a good entry level.
As of January 13, I’m adding shares of BorgWarner to Jubak’s Picks with a target price of $82 a share by October 2011.
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 not own shares of BorgWarner 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 http://jubakfund.com/about-the-fund/holdings/.  I’ll have the fund’s portfolio as of the end of December posted in a few days.
Thanks.
Bought @ 70.48 on 27 Jan
Sold @ 82.01 on 4 Apr
Glad I sold when I did. ~$8 drop since…
Thank you Jim.
Bought 67.95 on 1/28/2011
Sold 81.91 on 4/4/2011
THank you for the writeup USDAportfolio on the indian stocks, two of those three have been on my radar for some time waiting for good entry points, the third one you mentioned was a good stock also will be watching it also. I love reading the posts of Jim’s it gives me good insight, sometimes I like his picks sometimes I think the others commenting have some picks that fit me.
Seaturtlelady,
Good memory. I did buy STD at the end of November, and I just added to the position earlier this week. I’m glad that you found that STD was a good fit for your portfolio and that you were able to buy at a good price. Now comes the “be patient” part, because I fully expect more volatility throughout the next 6 months. It will soon be a year since the PIGS crisis really began to affect European stocks, and it could continue to go on for quite a while. Nevertheless, the earnings for this company will continue to grow and the fundamentals will justify a higher price, regardless of what happens with the euro. In the meantime, I plan to sit back and enjoy the dividend.
USDAportolio…
Thanks for the suggestions on the India stocks!
Did you ever buy any STD?? I bought a partial position when it hit under $10.00 last week and then noticed after buying that a dividend will be paid on Feb. 1.
Thanks Jim for still maintaining this site! 🙂
I like this one. Will do more research now 🙂
Good pick, Jim. This one was on my watch list for over a year. I never bought BWA because I already own three specific plays on the auto recovery.
On another note, readers should keep their eye on India. It’s been two months since the Indian market peaked and proceeded to move into correction territory. The peak on Nov 5th coincided with a reversal in the dollar’s downward trend against the rupee and other emerging market currencies. Some good companies in India have been hit especially hard and have become buying opportunities for long-term investors. Names to keep your eye on are IBN, TTM, and INFY.
As I always say, trends tend to persist to excess, and I often spot a good buying opportunity well before the bottom. So I expect this time to be no different – the downtrend could persist for a while longer. That said, I wouldn’t doubt that Indian stocks will start to get better when the dollar resumes its decline against the rupee. If the 12-month moving average serves as top for the dollar, that would mean a bottom for those Indian stocks within about two months. That said, if the PIGS problem is still going on, money flow from the euro into the dollar could continue to drive the dollar up. So I suspect that when we have successfully moved past worries about Portugal and Spain, the dollar will resume its downtrend against the rupee and the Indian stock market will be free to move higher.
So if any of those stocks fit your portfolio, watch the dollar-rupee and the news from Europe concerning Spanish debt.
Closely correlated with Cummins over the last year, though Cummins creamed them over the longer term (starting from a smaller base though). On a PE basis, cummins looks to be a bit less loftily valued.