We recently published a list of 10 Best Automotive Stocks To Buy Now. In this article, we are going to take a look at where Aptiv PLC (NYSE:APTV) stands against the other automotive stocks.
Headwinds in the Automotive Industry
The automotive industry is heavily commoditized relative to other industries considering the fact that consumers typically have numerous options in terms of the car they want to purchase, resulting in the need for automotive companies to compete with each other predominantly on pricing. As a result, many automotive companies, especially those offering pricier vehicles, have been seeing a decline in revenue growth and profit margins over the past couple of years. This decline is primarily a consequence of rising inflation which has significantly cut down your average consumer’s spending power.
According to Daryl Kenningham in his interview on CNBC’s “Squawk Box,” the President and CEO of Group 1 Automotive, the wider macroeconomic trends surrounding the automotive industry and the support of Original Equipment Manufacturers (OEMs) in the market have resulted in prices for vehicles, both used and new, beginning to fall in 2024 – though this price decline is being seen more evidently in the case of new cars, seeing as there has been a prolonged shortage of pre-owned cars in the market. Despite the decline, though, the average transaction costs for purchasing any car are still pretty high, which has been acting as an impediment barring consumers from getting into cars.
Rising Industry Trends
Considering the current market conditions, many consumers are thus looking for lower-priced vehicles. This spells trouble for electric vehicle (EV) producers since EVs are notorious for their hefty price tags and pricey battery replacements, and lays the foundation for the newest hot trend in the automotive space: hybrid cars. Ford’s former CEO, Mark Fields, in his interview on CNBC’s “Squawk Box” on August 30, noted that because of the greater convenience offered by hybrid cars, automakers dabbling within the EV space should expand their hybrid offerings. Simultaneously, the vision of producing pure EVs shouldn’t be entirely abandoned either – instead, time and resources must be dedicated to producing lower-priced EVs that automakers can actually make money on.
Fields further added that another impediment to the growth of EV makers today is the prolonged waiting time for charging an EV. For this, the only viable solution on the horizon is the development of solid-state batteries that can significantly reduce charge time to about 5-10 minutes – around the same time you spend at a typical gas station. However, the mass production of solid-state batteries and their incorporation in EVs is still something that we won’t see happening in the near future. This is why we believe that investors interested in automotive stocks should look at not only EV manufacturers but also traditional vehicle producers or, even better, companies that offer both types of vehicles to their consumers. The list we have compiled below reflects this position.
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A closeup of a hand holding a car engine component, highlighting the precision of the company’s engineering.
Aptiv PLC (NYSE:APTV)
Number of Hedge Fund Holders: 38
Aptiv PLC (NYSE:APTV) is an automotive parts provider based in Ireland. It provides electrical, electronic, and safety technology solutions to the automotive and commercial vehicle markets.
Several trends are propelling Aptiv PLC’s (NYSE:APTV) growth this year, namely the rise in popularity and demand for electric and connected vehicles, and a growing focus on software and digitalization. This is because Aptiv PLC (NYSE:APTV) offers essential technology for automotive and electric vehicles, including advanced driver assistance systems, such as its Gen 6 ADAS platform.
A bigger plus for investors of Aptiv PLC (NYSE:APTV) is that even if the electric vehicle market stagnates because of pricing concerns, Aptiv PLC (NYSE:APTV) will still benefit from the move towards hybrid vehicles, which are cheaper and more popular than purely electric vehicles. The company is also committed to returning value to its shareholders since it approved a $5 billion share repurchase authorization in its second-quarter earnings call and did, in fact, return $434 million to shareholders through repurchases during the second quarter alone.
Aptiv PLC (NYSE:APTV) had 38 hedge funds long its stock in the second quarter, with a total stake value of over $1 billion. Impax Asset Management was the most prominent shareholder, holding 6,225,071 shares.
ClearBridge Investments mentioned Aptiv PLC (NYSE:APTV) in its first-quarter 2024 investor letter:
“Stock selection in the consumer discretionary sector was the leading detractor from relative performance, driven by idiosyncratic issues within a handful of holdings. Automotive parts supplier Aptiv PLC (NYSE:APTV) faced pressure as headwinds to the broader auto-cycle and a slowing in electric vehicle adoption weighed on margins. However, we believe that the company’s above-market growth, combined with opportunity for margin expansion, are compelling at its current valuation as the auto-cycle rebounds.”
Overall APTV ranks 8th on our list of the best automotive stocks to buy. While we acknowledge the potential of APTV as an investment, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than APTV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.