Ford, GM Among The Top UBS Value Plays For 2018

Value stocks are favored in this market rotation and some auto names are riding the trend.

Amid great disparity between growth and value, a UBS analyst expressed a preference for the likes of General Motors Company GM and Ford Motor Company F.

The Ratings

Analyst Colin Langan reiterated Buy ratings on Adient PLC ADNT ($95 price target), BorgWarner Inc. BWA ($61 price target), Tenneco Inc TEN ($70 price target), Ford ($15 price target) and General Motors ($50 price target).

He reiterated Holds and adjusted price targets on:

• Dana Inc DAN: PT raised from $30 to $33;
• Delphi Technologies PLC DLPH: PT maintained at $58;
• Aptiv PLC APTV: PT maintained at $89;
• Lear Corporation LEA: PT raised from $184 to $186;
• Magna International Inc. (USA) MGA: PT raised from $52 to $57;
• Meritor Inc MTOR: PT maintained at $26;
• Visteon Corp VC: PT raised from $125 to $129.

The Thesis

“It’s hard to ignore the performance gap between growth and value,” Langen said. “The secular growers are up 29 percent year-to-date, almost twice the gains of ‘value’ suppliers (up 14 percent). However, the average five-year CAGR of growth names was only 30 basis points higher than value, with many ‘value’ suppliers outperforming most growth names.” (See Langen's track record here.) 

Langen anticipates buyback-driven swells in General Motors and improved international sales and fewer recalls for Ford.

A weakening dollar and double-digit increases in heavy truck and off-highway vehicles could boost exposed suppliers Meritor, Dana, BorgWarner, Delphi and Tenneco in 2018, he said. The former three are considered the best positioned on market mix, according to UBS. 

Auto players may also catch a tailwind off government activity. Suppliers could benefit from a 2- to 4-percent tax cut as Ford and General Motors enjoy an 11-percent slice, while a breakup of NAFTA could drive cost increases between 0.7 percent and 5.4 percent, Langen said. 

Price Action

At the time of publication, First Trust Exchange-Traded Fund II CARZ tracking car manufacturers was trading up 1.1 percent at $42.02.

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