Dealmaker’s Diary: A Surprise Tech Powerhouse

Alpesh Patel|October 24, 2024

The auto sector has benefited in a huge way from all the advances in technology.

But there’s one company that’s powering the future of the industry.

Whether it’s electric vehicles, self-driving cars, or even flying cars, this tech powerhouse is behind the scenes making it all possible.

It was named one of the world’s best companies by Time magazine… boasts $14.2 billion in revenue… and is seriously undervalued.

It isn’t just another auto parts maker… it’s a cutting-edge technology play has 40% upside from here.

Get all the details on the company – including its ticker – in my latest video.

This the kind of research my clients pay thousands for… but you get it for FREE as a Total Wealth subscriber.

Click on the image below to dive in.

TRANSCRIPT

Hi, friends. Welcome to the Dealmaker’s Diary and Stock of the Week.

As you know, the process is, as a hedge fund manager, I get my team to send me some of the best selections as a shortlist for me to consider for the Dealmaker’s Diary. Now, they go through a lot of data. They go through a lot of graphics. And then I select the one based on my experience and expertise that captures my eye for the Stock of the Week, what we call the Dealmaker’s Diary.

Let’s get to it.

BorgWarner (BWA) is a global leader in delivering innovative and sustainable mobility solutions for the automotive industry.

Electric vehicles… self-driving cars… flying cars… Whatever the innovation is, this is a company at the heart of it, because it specializes in advanced technologies for both combustion, hybrid, and electric vehicles.

The company offers products such as turbochargers, powertrain components, and electric propulsion systems.

So the point is, whoever you are in the automotive industry, you’re going to be looking at this company to supply and provide some of the things that you need.

To that extent, Time magazine has called it one of the world’s best companies.

It had $14.2 billion in revenue in 2023. Growth is expected to continue.

Now, these are the numbers that caught my eye…

As you know, I have a proprietary algorithm which goes through the profit and loss accounts, the balance sheets, and the cash flow statements of 10k companies. It then looks and weighs the valuation of a company (its share price relative to profitability), its revenue growth (also known as sales growth), its profit growth (also known as earnings growth), the income it generates through dividends… and it scores them out of 10.

So anything with a 7, 8, 9, or 10 ticks my box, meets my minimum criteria.

You might say, surely you just want 10s, Alpesh. Well, the stock market isn’t physics. So 7, 8, 9, or 10 meets the minimum criteria. This does that.

The forecast P/E ratio for what you can consider a tech company – it’s not an automotive company, it’s a tech company – is 8.6. Not tech in the Nvidia AI sense, but there’s a lot of technology that goes into what this company does.

Now, even for an automotive company, a forecast P/E ratio where you’re 8.6 dollars for every future dollar of earnings is cheap.

Cash return on capital invested – CROCI – is 4.8. I would rather the cash it was generating on income was above 10. Companies in the top quartile, according to Goldman Sachs Wealth Management, which usually means above 10%, tend to produce exceptional returns… but 4.8 is good. It’s not a bad number by any means at all.

Volatility is well below 20% as well. So ticks enough of my boxes.

I’ll tell you what I really like.

I love it when I get this smooth momentum. I’m looking at the momentum based on the monthly MACD when it goes up this way. Now in an ideal world, I need the blue dotted line, which is a measure of the short- and medium-term stock prices, to be above the yellow. That is better.

So you could argue we’re a bit early on this one.

Now, if it goes and breaks above its highs, which were in 2021, we’re looking at a pretty good return. Even if it got to 40%, I’d be happy with that.

And if that’s going to be the case, it certainly has no business going below $27, $28. Some might say no business going below $30, actually. So you’ve got a pretty good floor, tight floor, small floor… a quick way to find out if you’d be wrong by any means.

But you can see the projection I’ve put on it.

On a discount cash flow basis, guess what? My argument is supported. On a discount cash flow basis, the stock is undervalued by 55%.

The price should be closer to $80. Where would that take us? Well, even above that level. So not bad at all on that basis.

Hope you like that insight. I hope it was a bit entertaining as well as informative and educational. That is my goal.

Thank you all very much. I hope you’re having a peaceful time wherever you may be. Thank you.