Vehicle launches and thriving economy are driving new vehicle sales. This upside has encouraged automotive manufacturers to ramp-up vehicle production, which in turn, has led to sales growth for the original equipment manufacturers (OEMs), which supply required auto parts and components for vehicle production.
In the coming years, OEM industry is likely to witness greater demand from the emerging economies, which are likely to drive its revenues. This probable change in customers’ need will require OEMs to adjust themselves with the shifting demand and supply pattern per the production in individual regions.
However, in order to remain on par with the evolving trends in the automotive market, OEMs have to escalate its spending to develop innovative components as well as set up new production lines to manufacture those products. The industry's performance depends on how well it manages to balance its mounting expenses and tackle challenges in the process.
The industry shows good growth prospects with augmented developments for autonomous and electric vehicles. Further, demand for vehicles complying with environmental and safety standards along with fuel efficiency, will require upgraded auto equipment. Also, changing consumer preference for vehicles will lead to a spurt in demand for innovative, cost-effective and high-quality auto components by automotive companies to launch better vehicles. All these factors should help OEM players boost its revenues.
Screening the Stocks
Let’s glance through a few companies within the Zacks Automotive – Original Equipment industry with potential to provide better returns via the VGM Score. A value stock implies stocks trading lower than its fair price or intrinsic value, thus offering a significant upside potential. For this particular strategy, stocks with an impressive VGM Score of A or B have been selected. Additionally, the screened stocks sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Aurora, Canada-based Magna International Inc., (MGA - Free Report) is a leading manufacturer and supplier of automotive components. Over the past year, shares of Magna have outperformed the industry it belongs to. The stock has rallied 27.5% compared with the industry’s growth of 13%.
VGM Score of A
Zacks Rank #2
Headquartered in Troy, MI, Meritor, Inc. (MTOR - Free Report) is a global automotive parts manufacturer and supplier. A few of its products are integrated systems, modules and components for commercial and specialty vehicles. In the past year, the stock has gained 26.3%, outperforming the industry it belongs to.
VGM Score of A
Zacks Rank of 1
Based in Auburn Hills, MI, Unique Fabricating, Inc. (UFAB - Free Report) is a provider of components in the automotive and industrial appliance market. Year to date, shares of Unique Fabricating have outperformed the industry it belongs to. The stock has grown 14.4% versus the industry’s decline of 1.4%.
VGM Score of B
The stock is a Zacks #1 Ranked player.
Headquartered at Detroit, MI, American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) is a leading supplier of driveline and drivetrain systems, modules and components for the light vehicle market. The company offers products inclusive of chassis modules, driveshafts, power transfer units and transfer cases for light trucks, sport utility vehicles (SUVs), passenger cars, crossover vehicles and commercial vehicles. In the past three months, the stock has climbed 5.1% versus the industry’s decrease of 3.2%.
VGM Score of A
The stock is a Zacks #2 Rank player.
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