Volkswagen Scandal Has Affected Auto Component Suppliers: 3 to Buy Now

By Lee Jackson Updated Sep 24, 9:59AM EDT · Published Sep 24, 8:15AM EDT

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It never fails. When there is a big corporate misstep, the over-reaction crowd, which is often event-driven hedge funds selling short, takes over briefly. The Volkswagen emissions scandal is another textbook example of this. A new report from Stifel maintains that the top companies with exposure to the German auto giant have low percentages of overall business with them.

The Stifel analysts maintain that while the auto component suppliers have significant overall automotive exposure, none of them is so over weighted to VW that there should be any long-term damage. In fact, they estimate that VW represents less than 5% of sales for the companies in the firm’s coverage universe, with North American share significantly lower.

They also think the sell-off is over-done and investors have a chance to buy some of the top stocks at outstanding levels. Here are three that are rated Buy at Stifel.

Sensata Technologies

This top stock is down a stunning 25% since April. Sensata Technologies Holding N.V. (NYSE: ST) is one of the world’s leading suppliers of sensing, electrical protection, control and power management solutions with operations and business centers in 16 countries. Sensata’s products improve safety, efficiency and comfort for millions of people every day in automotive, appliance, aircraft, industrial, military, heavy vehicle, heating, air-conditioning and ventilation, data, telecommunications, recreational vehicle and marine applications.

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The Stifel analysts estimate that Volkswagen accounts for 5% to 7% of sales to the company, primarily from Europe and China, where the company sells predominantly gasoline-based cars. The VW issues are primarily diesel engine vehicles. While there could be a near-term lower demand from VW, the analysts remain positive long-term on the company and believe Sensata remains well positioned to take advantage for content growth and should see leverage as mergers and acquisitions related costs come out.

The Stifel price target for the stock is $58. The Thomson/First Call consensus target is set at $57.92. The stock closed trading on Wednesday at $43.49.
TE Connectivity

This stock is down a whopping 15% in the past two months. TE Connectivity Ltd. (NYSE: TEL) designs and manufactures products at the heart of electronic connections for the world’s leading industries, including automotive, energy and industrial, broadband communications, consumer devices, health care and aerospace and defense. TE has a long-standing commitment to innovation and engineering excellence that helps its customers solve the need for more energy efficiency, always-on communications and ever-increasing productivity demands.

Many on Wall Street are bullish on the stock due to the increasing electronic content in automotive, industrial, consumer and defense industries. Analysts cite the stock’s very reasonable valuation and the high-growth auto sensor business helping to ramp up sales and earnings. While VW accounts for about 5% of total sales, the Stifel analysts think there will be little if any meaningful material impact as the company has such broad overall market exposure. They also think TE is well positioned long term to take advantage of content growth in the automotive market. Another positive is the $3 billion in share buybacks outstanding, which is expected to be completed within a year.

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TE investors are paid a solid 2.25% dividend. The Stifel price objective is $74, and the consensus target is $74.55. The stock closed Wednesday at $58.81.

TTM Technologies

This stock is down over 40% since June and could have very solid upside potential. TTM Technologies Inc. (NASDAQ: TTMI) is a major global printed circuit board manufacturer, focusing on quick-turn and technologically advanced PCBs, backplane assemblies and electromechanical solutions. TTM stands for time-to-market, representing how TTM’s time-critical, one-stop manufacturing services enable customers to shorten the time required to develop new products and bring them to market.

The Stifel team points out that the company has about an 18% exposure to the overall auto market, which it gained through the acquisition of Viasystems. Given the absolute evisceration of the stock, aggressive accounts may have an awesome trade here with the potential for a retracement of the big decline.

The Stifel price target is $11, while the consensus target is $11.63. The stock closed trading on Wednesday at $6.24.

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Like all headline risk stories, this too will go away in a very short time. Like the political commentary that hammered biotech and big pharmaceuticals, the bark is always much worse than the proverbial bite.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.