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Making Money with Auto Parts Suppliers: Investing Behind the Scenes

Posted in auto industry, Car Accessories by Vito Rispo | July 24th, 2008 | Leave a Reply |

A lot of people are talking financial doom and gloom right now; but people in the know, people like Peter Lynch and Warren Buffet, will tell you that when most everyone else is saying ”buy”, be wary; and when everyone is telling you to sell, look for the value buys. Even when the market looks bad, there are always opportunities, in fact, some opportunities are created by the “down market”.

So where are some opportunities now? Not in the auto makers, but in auto parts suppliers.

Here are some micro-cap stocks in the auto parts field that I think deserve further review. Check them out, see what you think.

1. Sorl Auto Parts (SORL)

Sorl Auto Parts makes and sells air brakes and air brake parts for commercial vehicles like buses and trucks. First of all, the insider ownership of this company is over 50 percent. High insider ownership is a very good thing, it doesn’t always equal a good company, but it’s a sign that the people running the company have confidence and a tangible investment in the future of the company. They have a 33 percent income growth rate, a P/E ratio under 10, and very little debt (if you don’t know what this all means -it means it’s good). And they’re in China, that’s the biggie; China is building roads, buses, and trucks faster than any country is in the world right now, in fact, faster than any country in the history of the world ever has. Yeah.

2. Wonder Auto Technology (WATG)

Wonder Auto Technology is another Chinese micro cap stock. They mainly make alternators and starters and sell them to auto parts suppliers and car manufacturers inside China, but they’re starting to branch out and offer other electrical equipment and struts and various other auto parts to the international market as well. Again, very high insider ownership (50%+), solid earnings, and…China. These guys already have a good hold on Chinese auto makers, being one of the major parts manufacturers for most of them, as China grows, so will they.

3. Dorman Products (DORM)

Dorman Products is a US company, and is one of those companies that I love because they make all sorts of little stuff that you never think about but would be screwed without. All the little fasteners and clips and brackets and coolant lines and weird nut and bolt type parts that hold together a car, they make them. These guys have all the stuff I like too; high insider ownership, solid growth and a niche where they’re important and will stay important.

4. Altair Nanotechnologies (ALTI)

Altair makes and sells lithium ion batteries. That’s the main reason they’re here. Their insider ownership isn’t particularly high and they don’t look as obviously solid as the other companies on this list, but if lithium ion batteries become even half as important to the future of the auto industry as I think they will, Altair will do just fine. This stock has the potential to be either the biggest winner or the biggest loser on this list. Invest with caution.

5. China Automotive Systems, Inc (CAAS)

China Automotive Systems makes and sells anything that has to do with steering; power steering systems, pumps, lines, sensors, steering columns, rack and pinions, etc. Again, in line with the rest of these stocks, they have huge insider ownership (over 70%), they’re a major player in their field, and they’re very small, meaning there’s lots of potential upside. And just like Sorl and Wonder Auto, they’re in a great niche position in China, ready to supply that growing nation with the auto parts it needs.

The main theme in the next few years will be part suppliers. So when you see that the electric car revolution is on the horizon, don’t jump on that auto makers bandwagon, find out who makes the parts, who is benefiting from the car’s sales, and invest in that company. That way, you insulate yourself from any potential downside of the car being a flop, while sill reaping the rewards of its success.

If you’re interested in investing, you might want to check out The Motley Fool’s CAPS website (Caps.Fool.Com). They have tons of information from other investors and one of the very best stock screeners on the internet. You have to register with the site to use it, but its free, and well worth that short time it takes to register. My CAPS name is ‘sciencebzzt’, feel free to look me up.

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