NEW YORK (AP) — Relatively stable automotive production levels during the fourth-quarter along with lower raw material costs and currency benefits could result in better-than-expected financial results for some auto suppliers, an analyst said.
But at the same time, worries about the economy and an expected drop in vehicle production don't bode well for the sector in 2008, Wachovia's Richard M. Kwas said.
Kwas said companies with strong European exposure, such as BorgWarner Inc., Tenneco Inc. and Magna International Inc., should get a boost from a 12 percent increase in the value of the euro.
In addition, steel prices were down about 4 percent, benefiting suppliers that didn't fully hedge their steel costs. North American vehicle production was up about 1 percent, he said.
But the analyst warned that North American production is expected to be down about 3 percent in the first quarter and automotive stocks have already factored in lower production in the first half of the year.
''The group could experience another leg down if the U.S. experiences an overly weak spring selling season,'' Kwas wrote in a note to investors. ''Suppliers with global revenue leverage and secular growth stories are best positioned in the current environment, in our opinion.''
Kwas pointed to BorgWarner, which reports on Feb. 7, and Tenneco, which reports on Thursday, as his top picks in the sector.
Kwas said Tenneco should benefit from growing demand for its emissions and diesel products, while BorgWarner's should get a boost from diesel demand and its potential for future acquisitions.
Johnson Controls Inc., which kicked off the sector's earnings season on Friday with fiscal first-quarter results, got a boost from its building efficiency business, which makes heating and cooling systems.
The company's profit and sales beat Wall Street estimates, but the company cut its 2008 North American automotive production forecast to 14 million units from 14.8 million.
Elsewhere in the sector, ArvinMeritor Inc. reports on Jan. 29, with Lear Corp. following on Jan. 31, American Axle & Manufacturing Holdings Inc. on Feb. 1, Visteon Corp. on Feb. 11 and TRW Automotive Holdings Inc. on Feb. 18.
