Results Drive These Automotive Stocks Higher
The automotive industry is struggling with systemic issues but, by all accounts, still doing quite well. While the major OEMs are cutting back on production, sales remain robust and the outlook for the industry is healthy. Today, we’re looking at three under-the-radar stocks in the automotive industry benefiting from strong secular demand. One thing these companies have in common is better than expected results, but there are other commonalities as well. They also all pay safe dividends and trade a discount relative to the broad market, and they are all investing in growth.
1. Patrick Industries - Supplier To The RV Market
Patrick Industries (NASDAQ:PATK) is not a pure-play on the automotive industry, but it is sitting pretty as a manufacturer of parts and components for the RV industry. The RV industry is growing at a high-double-digit rate and momentum appears to be building, and that is easily seen in Patrick Industries’ results. The company reported a 51.3% increase in YOY revenue driven by a 50% increase in the RV segment that beat the Marketbeat.com consensus estimate by more than 1000 basis points. RVs account for over 60% of the company’s revenue with the remainder made up by the boating, manufactured housing, and industrial segments which are all up double-digits as well.
Turning to the dividend, Patrick Industries yields about 1.45% with the stock trading at only 9X its earnings. That is slightly better than the average S&P 500 stock at less than half the cost. The company is paying out only 13% of its consensus earnings so there is room for growth as well as some history. The company has only paid a dividend for two years but increased it for the second. If the company continues this trend, the next declaration will include a distribution increase. The only red flag is a high level of debt, but the debt is being used to fuel growth and is, so far, well covered.
2. Specialty Vehicles From Oshkosh Are In Demand
Oshkosh Corporation (NYSE:OSK) makes a wide range of mission-critical specialty vehicles for business and industry. The company just reported a 15.75% increase in YOY revenue that, frankly, could have been greater if not for supply chain disruptions. The really bad news is the company missed the consensus estimates but by a paltry 10 basis points so not really news at all. More importantly, the company’s margins have been able to hold up better than expected and drove above-consensus earnings on both a GAAP and adjusted basis.
Oshkosh is less of a value trading at 18X its Marketbeat.com consensus for earnings, but still a value relative to the broad S&P 500 index. At the same time, it has a much better outlook for dividend growth if a slightly smaller payout than Patrick Industries. Oshkosh shares are yielding about 1.28% with the company paying out only 23% of earnings. The company has been increasing the payout for the last 8 years and just increased it by double-digits. The balance sheet is a fortress as well, so no reason to fear a cut or suspension, and every reason to expect distribution increases will continue.
3. Standard Motor Products Is An After-Market Specialist
Standard Motor Products (NYSE:SMP) is an after-market specialist manufacturing parts for OEM repairs as well as the retail market. The company just reported a 7.8% increase in YOY revenue that beat consensus by 800 basis points and extended last year’s solid 11.66% gain. The revenue strength carried through to the bottom line as well, resulting in double-digit outperformance on both a GAAP and adjusted basis. In regards to the dividend, this stock represents the best of both worlds offering a higher 2.10% yield and trading at the deep discount of 12X its earnings. The company is only paying out 25% of its earnings and has a strong balance sheet so dividend increases are on the table as well.
