The recent sharp selloff in the stock market has opened up massive opportunities for the savvy investor. Many stocks are selling at substantial discounts and are deep into the value zone.
The trick is being able to ascertain what stocks are truly deeply undervalued and set for outperformance in 2016.
One way to differentiate these winning stock from the majority that will simply continue to flounder is to look at macroeconomic trends within the U.S. economy.
We have identified one of these thriving sector uptrends and two unusual stocks poised for solid gains in 2016.
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These two stocks also fit with a professional investor secret to profiting from positive news and sector uptrends.
Every sector uptrend has its story stocks. These are the stocks that everyone knows and often purchase. These leading stocks are not where you want to be invested during market selloffs. You see, the fact that these stocks are so popular means that the public is deeply invested in them. The public easily panics and sells their holdings making these popular names plunge faster in value. As they say, the faster something climbs higher, often the faster it plunges.
The secret is to find stocks that are under-the-radar yet benefitting from the sector uptrend. These stocks benefit from the overall bullish sector trend but are often not subject to the same negative volatility of the big names.
Make no mistake, these under-the-radar stocks do get knocked lower during overall market selloffs. At the same time, these little known stocks often rebound faster thereby make smarter investments than the big-name stocks in the sector.
The sector that has thrived during the lack luster 2015 year is the automobile sector.
Let’s take a closer look before we talk about the specific stocks.
Believe it or not automobile sales hit a new record in 2015.
Approximately 17.5 million cars and trucks were sold in 2015. This beat the previous all-time record of 17.3 million sales in 2000 and crushing the 10.4 million sales in during the stock market sell off of 2009.
The record was the result several economic catalysts.
These catalysts include improving wages and confidence of the healthy job market; fast credit and plunging gas prices; and the repressed demand of the average car being 11 years old.
2015’s $437 billion in car sales crowned a six-year growth streak, the industry’s first since World War II.
Many industry analysts expect the growth to continue into 2016.
Even higher interest rates should not retard the growth trajectory.
ABC News reported that Oliver Strauss, the chief economist at car buying site TrueCar.com, says the interest rate would have to reach 3 percent before it would cause car sales to stagnate.
As you know, the Fed is very slow and cautious about rising rates therefore it will likely be quite some time until rates hit the 3% level.
ABC News went on to explain the improvement by saying the employment numbers also improved last year, so more buyers — particularly the huge generation of under-34 millennials — found they could finally afford a new car.
People who held off purchases during the recession were also lured back into the market by enticing new vehicles like the Jeep Cherokee and the revamped Ford F-150 pickup. Ford sold 780,354 F-Series trucks last year — more than one every minute — making it the nation’s top-selling vehicle.
Now, the public will react to this positive news by buying the “big names” in the space like Ford (NYSE:F) or General Motors (NYSE:GM).
While these big names should benefit from the overall improvement, the smart money is looking behind the curtain at lesser known names in the auto sector.
The big names don’t make sense for savvy investors due to the reasons listed above and another very critical reason.
The reason is that it is these small auto industry suppliers will benefit no matter what automaker stock is hot this year or in the future.
These stocks are a much broader bet on the continued improvement of the industry.
My two favorite names in the auto sector are Gentherm (Nasdaq:THRM) and Visteon (NYSE:VC).
Many investors may not have even heard of these companies but both of them have set up to be great buys right now.
Let’s drill into each of them.
This company was spun off of Ford in 2000. It is one of the largest automobile component stocks. The company makes an entrie range of products but has a goal to be the leader in what is called the connected cockpit electronic system market.
Obviously, this is a rapidly growing market. Infotainment, navigation, threat detection, and overall connectivity will likely soon become standard features and Visteon is riding this wave. Add in the fact that technologies like heads up displays and self-driving cars are soon to be commonplace and it spells a huge opportunity.
The company increased guidance and announced third-quarter 2015 results in November.
It reported sales of $808 million and net income attributable to Visteon of $5 million, or $0.12 per share. Adjusted EBITDA, a non-GAAP financial measure as defined below, was $65 million for the third quarter, compared with $30 million in the same period last year. Adjusted net income, a non-GAAP financial measure as defined below, was $23 million for the third quarter, or $0.56 per diluted share.
The company’s first foray into the auto sector was as a maker of electronically heated seats. It the expanded to all types of climate control systems in vehicles.
The company describes itself as being in engaged in the design, development and manufacturing of thermal management technologies.
THRM’s segments are: Automotive, Industrial. The Automotive segment represents Gentherm’s three geographic operating segments: North America, Europe and Asia.
The Automotive segment includes automotive seat comfort systems, specialized automotive cable systems, and other automotive and non-automotive thermal convenience products.
One of the reasons we really like this company is the fact that it has a $10 million multi-year contract with a major automobile company. In addition to just announcing another 5 years, $8 million contract pending with shipments with another major auto company. Shipments are slated to start in 2018 with the new contract.
The latest numbers indicate revenues for the first 9 months advanced from 606.1M to 644.2M. This represents just under 7% revenue growth. However, its critical to note that sales growth has suffered due to currency headwinds.
Showing that the company is expanding away from its core roots, it was granted a two-year, $2.75 million contract by the U.S. Navy’s Bureau of Medicine and Surgery and the Naval Medical Research Center. The effort aims to develop an energy efficient patient warming system.
Gentherm President and CEO Daniel R. Coker noted that the medical device project represents another application and a new product category for its thermal management technologies outside the automotive industry, where the Company generates the majority of its revenue.
“This is an exciting new project for us in a new industryhealthcare and medical devicesthat we have targeted as representing an important future for our broadening array of thermal management technologies,” Coker said. “We are leveraging our industry-leading expertise in thermal management, as well as our partnerships with world-class research institutions, toward a goal of bringing a completely new concept in patient warming to the market. We expect this project will expand our knowledge of thermal regulation, which is important for comfort and therapy.
“We are very pleased to be recognized for our leadership in developing and commercializing thermal management solutions by the U.S. Navy, and to be working with such a prominent and capable team of researchers,” Coker added.
We like both these companies at the current levels for long term holds.