What are we looking for?
Equities that stand out among automobile and auto-parts companies in North America.
The screen
As this year's hurricane season comes to a close, 2017 has solidified its place in the books as one of the most active hurricane seasons in modern history. The month of September had the most active hurricanes on record, and we witnessed two very intense Category 5 storms, Irma and Maria, as well as Hurricane Harvey in August, which touched down in Houston.
One of the consequences of such an intense season is the extreme damage that the weather has brought to property, specifically automobiles. Estimates of the total cost by Hurricane Harvey are approaching $200-billion (U.S.), which has surpassed Hurricane Katrina's $160-billion (in 2017 dollars) in 2005. Upwards of 500,000 to 1,000,000 cars could be destroyed by hurricanes this season, which could substantially increase the demand from auto makers and auto-parts manufacturers over the next year.
Today, we compare North American companies with the Thomson Reuters Business Classification (TRBC) primary industry description of "automobiles and auto parts." The companies also must have a market capitalization of more than $1-billion and have a StarMine Relative Valuation rank of more than 80. The StarMine Relative Valuation model features six prominent valuation measures that are relevant to most securities: enterprise-value-to-sales; EV/EBITDA, price-to-earnings; price-to-cash-flow-from-operations; price-to-book; and dividend yield. (EBITDA represents earnings before interest, taxes, depreciation and amortization.) For companies that do not produce dividends, the model also considers share buyback activity. The model combines these measures to produce a score out of 100.
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What did we find?
General Motors Co. and Ford Motor Co. tied for the highest ranking in terms of Relative Valuation with scores of 98. GM posted stronger than expected pre-tax profit on Tuesday, and shares jumped 3 per cent in early trading on the news. GM has gained more than 40 per cent over the past 52 weeks.
Magna International Inc. also scored high on the list with a relative valuation of 91. The Canadian-based company manufactures and supplies various automotive parts globally. Magna is up 30 per cent over the past 52 weeks and could see increased demand for its services due to the hurricane season.
Investors are encouraged to do their own research before investing in any stocks listed here.
Paul Hoyda, CFA, is a market specialist in the financial and risk division of Thomson Reuters and specializes in governance, risk and compliance.