Summary
- Auto sales historically grow at a low rate, leading to low valuations for auto-related stocks
- ON Semiconductor and Autoliv are examples of good growth at a reasonable price stocks
- ON Semiconductor’s markets include automotive and industrial end markets
- Near-term challenges have affected both companies due to market conditions
- Autoliv dominates the automotive passive safety market and has strong long-term growth prospects
Article
The automotive market can be challenging for investors due to historically low growth rates and the risk of falling into a value trap. However, there are still opportunities for growth at a reasonable price (GARP) in the industry, with companies like ON Semiconductor and Autoliv offering good potential. ON Semiconductor has strategically focused on automotive and industrial end markets, positioning itself well for growth in areas such as electric vehicles (EV) and advanced driver assistance systems (ADAS). Despite near-term challenges in the industry, ON Semiconductor remains optimistic about the long-term growth prospects.
ON Semiconductor has faced challenges this year due to reduced demand from a major automotive original equipment manufacturer and lower expectations for growth in industrial automation. However, the company’s management is confident in the underlying demand and believes that the current slowdown will not last forever. With its exposure to growth industries such as EV and industrial automation, ON Semiconductor is trading at a relatively low valuation compared to its growth potential.
Autoliv, on the other hand, is a dominant player in the automotive passive safety market, with a significant market share in airbags, seatbelts, and steering wheels. The company has a strong track record of outgrowing its end markets and has the potential to grow in any environment. While there may be pressure on its content per vehicle (CPV) in the near term, Autoliv is well-positioned for long-term growth, especially as safety features become more important worldwide. Trading at a reasonable valuation, Autoliv offers solid growth prospects for investors.
Both ON Semiconductor and Autoliv present good investment opportunities for those looking for growth at a reasonable price in the automotive market. ON Semiconductor’s exposure to EV and industrial automation markets, combined with its low valuation, makes it an attractive option for investors. Autoliv’s dominance in the passive safety market and track record of outperforming its end markets make it a solid choice for long-term growth. Investors looking to capitalize on the automotive industry’s potential should consider these two stocks for their portfolios.
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