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JUNE 27, 2005
Auto-Parts Stocks With Tread Investing in auto parts -- what could be less trendy? Detroit's too familiar ills, acute and chronic, have laid the parts vendors even lower. Of 129 industries tracked by Morningstar (MORN ), stocks of only a few are faring worse this year than those of the auto-parts makers, which are down 15%. Like some roadside mess of mangled steel, the group is a fright to encounter dead-on: Visteon (VC ), off 30%; Lear (LEA ), down 36%; Delphi (DPH ), cut nearly in half. Just the same, I can't help wondering if there aren't some stocks among the auto-parts makers worth salvaging. No, the glut of sports-utility vehicles and other out-of-favor models favored by Detroit won't be worked off in a few weeks. Nor will General Motors (GM ) and Ford (F ) get their costs in line this year. Yet this much I know: Wall Street rarely slashes an industry with precision and vision. With this in mind, I set out to pick through the auto-parts bargain bin. It holds dozens of stocks, but I limited myself to those with stock-market values of at least $1 billion. That notably left out Ford's spin-off, Visteon. Its market cap comes to just $873 million, even after Ford recently agreed to reclaim some of Visteon's troubled operations. As for Delphi, GM's once captive supplier, it's still under a Securities & Exchange Commission accounting probe and expects soon to restate its financial results. So I set Delphi aside, too. That left 11 companies. For these, I checked price-earnings ratios, balance sheets, dividends, and how reliant each is on Detroit's Big Two, plus DaimlerChrysler (DCX ). My favorite prospects: -- Gentex (GNTX ). This maker of high-tech rear-view mirrors (they dim automatically to adjust for headlight glare from the rear) gets nearly one-third of its sales from GM. Yet the balance of its customer base is well diversified, including Toyota (TM ) (13% of sales), Nissan (NSANY ), and BMW (each 8% to 9%). Its balance sheet shows nearly $517 million in cash and short-term investments and no debt. The stock comes with a 1.8% dividend yield. -- Magna International (MGA ). Based in Canada, Magna is Gentex's chief rival in auto-dimming mirrors. But that is just one part of Magna's much broader line of parts and assemblies. Some 61% of sales come from GM, Ford, and DaimlerChrysler, so Magna is hardly immune to their woes. Still, its balance sheet is in good shape -- cash and short-term investments of nearly $1.5 billion easily outstrip total debt of $962 million -- and the stock already has paid the price of Magna's ties to Detroit. It's down 18% from the 52-week high and now yields 2.2%. -- Modine Manufacturing (MOD ). While Modine got its start 88 years ago as a radiator maker, its exposure to autos has shrunk to 36% of sales. Soon, it's set to exit its money-losing replacement parts operation, boosting the share of its nonauto lines even more. These include parts for heavy trucks and heating, ventilation, and air conditioning systems. Chief Financial Officer Brad Richardson told me Modine has high hopes for fuel cell technologies. Debt of $106 million makes up less than 14% of capital. Yield: 2.2%. Others among the beaten-down parts makers may bounce back higher. Visteon, for example, shot past $8 a share from $3.14 over just 11 trading days in May. Yet if you, like me, pride yourself on your defensive-driving skills, Gentex, Magna, and Modine will look like smoother rides.  By Robert Barker
BW MALL
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