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3 Original Auto Equipment Stocks to Consider Amid Weakening Demand
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The Zacks Automotive - Original Equipment industry is benefiting from rising automation adoption, which is improving manufacturing efficiency, productivity, quality and safety while lowering labor costs for manufacturers. However, weakening vehicle demand, geopolitical tensions and rising oil prices are pressuring vehicle production and automotive equipment demand. The expected decline in North America vehicle production in 2026 and 2027 reflects these challenges. Despite the industry’s weak near-term outlook and underperformance relative to the broader market, companies such as Garrett Motion Inc. (GTX - Free Report) , PHINIA Inc. (PHIN - Free Report) and LCI Industries (LCII - Free Report) remain well-positioned due to innovation, diversified operations and expanding aftermarket businesses.
Industry Description
The Zacks Automotive - Original Equipment Industry comprises companies that design, produce and provide passive safety systems for the automotive sector. These systems aim to improve safety, boost efficiency, reduce overall ownership costs and streamline fleet management, supporting individuals who tackle some of the toughest jobs globally. Companies that design, engineer and manufacture Driveline and Metal Forming technologies to support electric, hybrid and internal combustion vehicles are also part of the same industry. The industry supplies equipment to the U.S. government and big car manufacturers. Some companies also engage in equipment financing and leasing solutions for their customers, primarily through third-party funding arrangements.
Factors Shaping Industry's Outlook
Automation to Enhance Manufacturing Efficiency: Automation involves the use of advanced technologies and machinery to perform tasks that were traditionally carried out by humans, helping improve efficiency, productivity, quality and safety while reducing labor costs. This transformation has significantly reshaped manufacturing by enabling faster and more efficient production processes. For original equipment manufacturers, automation provides a competitive advantage by lowering operating costs, mitigating rising labor expenses and boosting overall efficiency. It also allows manufacturers to respond more quickly to changing market conditions, enhance product quality and support the efficient production of electric and next-generation vehicles, all of which are essential for maintaining competitiveness in the global automotive industry.
Weak Auto Production to Hurt Demand: Demand for auto equipment is closely tied to vehicle production levels at automakers. When demand for new vehicles weakens, manufacturers typically reduce production, which, in turn, lowers demand for automotive equipment and components. The near-term outlook for the global auto industry has become increasingly uncertain due to the ongoing conflict in Iran. The situation has led to higher oil prices and increased market volatility, raising manufacturing and logistics costs across the industry. These pressures are expected to weigh on vehicle demand and production levels. The S&P Global has lowered its North America vehicle production outlook by 63,000 units for 2026 and 235,000 units for 2027. The anticipated decline in vehicle production is likely to reduce demand for automotive equipment, creating additional pressure on the revenue growth of auto equipment manufacturers.
Margin Pressure Intensifies: Original equipment manufacturers' profitability is coming under pressure due to increasing pricing competition and continued high financing and raw material costs, per Bain & Company. At the same time, uncertainty surrounding the speed of electric vehicle adoption is adding further strain, as automakers continue to support both EV and internal combustion engine product lineups simultaneously.
Zacks Industry Rank Indicates Dim Near-Term Prospects
The Zacks Automotive - Original Equipment Industry is part of the broader Zacks Autos/ Tires/ Trucks sector. It carries a Zacks Industry Rank #183, which places it in the bottom 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential.
Despite the negative industry outlook, we will present a few stocks that you might consider adding to your watchlist. Before that, let’s discuss the industry’s recent stock market performance and valuation picture.
Industry Lags the S&P 500 & Sector
The Zacks Automotive - Original Equipment Industry has underperformed the S&P 500 and its sector over the past year. The industry has declined 5% over this period against the S&P 500’s growth of 31.9%. The broader sector has returned 25.7% in the same time frame.
One-Year Price Performance
Image Source: Zacks Investment Research
Industry's Current Valuation
Since automotive companies are debt-laden, it makes sense to value them based on the Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) ratio.
Based on the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 18.33X compared with the S&P 500’s 18.15X and the sector’s 30.92X.
Over the past five years, the industry has traded as high as 22.19X and as low as 7.12X, with the median being 16.05X, as the chart below shows.
EV/EBITDA Ratio (Past 5 Years)
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
3 Stocks to Consider Right Now
Garrett: It designs, manufactures and sells turbocharging, air and fluid compression, and high-speed electric motor technologies for mobility and industrial applications. It continues to strengthen its leadership in the global turbocharger market, supported by a strong technology portfolio and a consistent track record of winning new program awards.
GTX currently carries a Zacks Rank #2 (Buy) and has a Value Score of B. The Zacks Consensus Estimate for 2026 sales and EPS implies year-over-year growth of 5.7% and 20.4%, respectively. Garrett has surpassed estimates in each of the trailing four quarters, the average earnings surprise being 16.33%.
PHINIA: It is a global leader in the development, design and manufacture of integrated components and systems that enhance performance, improve fuel efficiency and reduce emissions across combustion and hybrid propulsion platforms. It benefits from a well-diversified business model spanning geographies, end markets and customers, which helps reduce dependence on any single revenue stream.
PHIN currently carries a Zacks Rank #2 and has a Value Score of A. The Zacks Consensus Estimate for 2026 sales and EPS implies year-over-year growth of 6.6% and 28.2%, respectively. PHINIA has surpassed estimates in three of the trailing four quarters and missed once, the average earnings surprise being 22.95%.
Price & Consensus: PHIN
Image Source: Zacks Investment Research
LCI Industries: It is a supplier of components to the recreational vehicle and manufactured housing industries as well as adjacent industries, including bus, cargo and equestrian trailers, marine and heavy truck. The company expects growth in 2026 to be driven by increasing content per unit through continued innovation, a strong emphasis on expanding its aftermarket business that can serve nearly every RV currently in operation and rising momentum across OEM markets. In October 2025, LCI acquired all of the business assets of Leveltron, a well-known provider of Bigfoot Hydraulic Systems. The company intends to broaden Bigfoot’s presence in the RV aftermarket by leveraging its extensive distribution and dealer network to make the leveling systems more widely available.
LCII currently carries a Zacks Rank #2 and has a Value Score of A. The Zacks Consensus Estimate for 2026 sales and EPS implies year-over-year growth of 3.6% and 20%, respectively. LCI Industries has surpassed estimates in each of the trailing four quarters, the average earnings surprise being 22.06%.
Price & Consensus: LCII
Image Source: Zacks Investment Research
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3 Original Auto Equipment Stocks to Consider Amid Weakening Demand
The Zacks Automotive - Original Equipment industry is benefiting from rising automation adoption, which is improving manufacturing efficiency, productivity, quality and safety while lowering labor costs for manufacturers. However, weakening vehicle demand, geopolitical tensions and rising oil prices are pressuring vehicle production and automotive equipment demand. The expected decline in North America vehicle production in 2026 and 2027 reflects these challenges. Despite the industry’s weak near-term outlook and underperformance relative to the broader market, companies such as Garrett Motion Inc. (GTX - Free Report) , PHINIA Inc. (PHIN - Free Report) and LCI Industries (LCII - Free Report) remain well-positioned due to innovation, diversified operations and expanding aftermarket businesses.
Industry Description
The Zacks Automotive - Original Equipment Industry comprises companies that design, produce and provide passive safety systems for the automotive sector. These systems aim to improve safety, boost efficiency, reduce overall ownership costs and streamline fleet management, supporting individuals who tackle some of the toughest jobs globally. Companies that design, engineer and manufacture Driveline and Metal Forming technologies to support electric, hybrid and internal combustion vehicles are also part of the same industry. The industry supplies equipment to the U.S. government and big car manufacturers. Some companies also engage in equipment financing and leasing solutions for their customers, primarily through third-party funding arrangements.
Factors Shaping Industry's Outlook
Automation to Enhance Manufacturing Efficiency: Automation involves the use of advanced technologies and machinery to perform tasks that were traditionally carried out by humans, helping improve efficiency, productivity, quality and safety while reducing labor costs. This transformation has significantly reshaped manufacturing by enabling faster and more efficient production processes. For original equipment manufacturers, automation provides a competitive advantage by lowering operating costs, mitigating rising labor expenses and boosting overall efficiency. It also allows manufacturers to respond more quickly to changing market conditions, enhance product quality and support the efficient production of electric and next-generation vehicles, all of which are essential for maintaining competitiveness in the global automotive industry.
Weak Auto Production to Hurt Demand: Demand for auto equipment is closely tied to vehicle production levels at automakers. When demand for new vehicles weakens, manufacturers typically reduce production, which, in turn, lowers demand for automotive equipment and components. The near-term outlook for the global auto industry has become increasingly uncertain due to the ongoing conflict in Iran. The situation has led to higher oil prices and increased market volatility, raising manufacturing and logistics costs across the industry. These pressures are expected to weigh on vehicle demand and production levels. The S&P Global has lowered its North America vehicle production outlook by 63,000 units for 2026 and 235,000 units for 2027. The anticipated decline in vehicle production is likely to reduce demand for automotive equipment, creating additional pressure on the revenue growth of auto equipment manufacturers.
Margin Pressure Intensifies: Original equipment manufacturers' profitability is coming under pressure due to increasing pricing competition and continued high financing and raw material costs, per Bain & Company. At the same time, uncertainty surrounding the speed of electric vehicle adoption is adding further strain, as automakers continue to support both EV and internal combustion engine product lineups simultaneously.
Zacks Industry Rank Indicates Dim Near-Term Prospects
The Zacks Automotive - Original Equipment Industry is part of the broader Zacks Autos/ Tires/ Trucks sector. It carries a Zacks Industry Rank #183, which places it in the bottom 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential.
Despite the negative industry outlook, we will present a few stocks that you might consider adding to your watchlist. Before that, let’s discuss the industry’s recent stock market performance and valuation picture.
Industry Lags the S&P 500 & Sector
The Zacks Automotive - Original Equipment Industry has underperformed the S&P 500 and its sector over the past year. The industry has declined 5% over this period against the S&P 500’s growth of 31.9%. The broader sector has returned 25.7% in the same time frame.
One-Year Price Performance
Image Source: Zacks Investment Research
Industry's Current Valuation
Since automotive companies are debt-laden, it makes sense to value them based on the Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) ratio.
Based on the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 18.33X compared with the S&P 500’s 18.15X and the sector’s 30.92X.
Over the past five years, the industry has traded as high as 22.19X and as low as 7.12X, with the median being 16.05X, as the chart below shows.
EV/EBITDA Ratio (Past 5 Years)
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
3 Stocks to Consider Right Now
Garrett: It designs, manufactures and sells turbocharging, air and fluid compression, and high-speed electric motor technologies for mobility and industrial applications. It continues to strengthen its leadership in the global turbocharger market, supported by a strong technology portfolio and a consistent track record of winning new program awards.
GTX currently carries a Zacks Rank #2 (Buy) and has a Value Score of B. The Zacks Consensus Estimate for 2026 sales and EPS implies year-over-year growth of 5.7% and 20.4%, respectively. Garrett has surpassed estimates in each of the trailing four quarters, the average earnings surprise being 16.33%.
Price & Consensus: GTX
Image Source: Zacks Investment Research
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PHINIA: It is a global leader in the development, design and manufacture of integrated components and systems that enhance performance, improve fuel efficiency and reduce emissions across combustion and hybrid propulsion platforms. It benefits from a well-diversified business model spanning geographies, end markets and customers, which helps reduce dependence on any single revenue stream.
PHIN currently carries a Zacks Rank #2 and has a Value Score of A. The Zacks Consensus Estimate for 2026 sales and EPS implies year-over-year growth of 6.6% and 28.2%, respectively. PHINIA has surpassed estimates in three of the trailing four quarters and missed once, the average earnings surprise being 22.95%.
Price & Consensus: PHIN
Image Source: Zacks Investment Research
LCI Industries: It is a supplier of components to the recreational vehicle and manufactured housing industries as well as adjacent industries, including bus, cargo and equestrian trailers, marine and heavy truck. The company expects growth in 2026 to be driven by increasing content per unit through continued innovation, a strong emphasis on expanding its aftermarket business that can serve nearly every RV currently in operation and rising momentum across OEM markets. In October 2025, LCI acquired all of the business assets of Leveltron, a well-known provider of Bigfoot Hydraulic Systems. The company intends to broaden Bigfoot’s presence in the RV aftermarket by leveraging its extensive distribution and dealer network to make the leveling systems more widely available.
LCII currently carries a Zacks Rank #2 and has a Value Score of A. The Zacks Consensus Estimate for 2026 sales and EPS implies year-over-year growth of 3.6% and 20%, respectively. LCI Industries has surpassed estimates in each of the trailing four quarters, the average earnings surprise being 22.06%.
Price & Consensus: LCII
Image Source: Zacks Investment Research