The automotive sector is a classic example of a cyclical industry. Demand surges when economic conditions are favorable, such as when consumer confidence is high, unemployment is low, and interest rates are attractive.

However, these businesses often face difficult periods during economic downturns, and right now we are in one of those challenging times.

High inflation, rising interest rates, and economic uncertainty have all contributed to a dip in vehicle sales.

Consumers hold off on major purchases, including automobiles, as borrowing costs increased, and disposable income is squeezed.

However, for cyclical businesses, these down periods often present an opportunity. Historically, the best time to invest in these companies is when pessimism is at its highest, and valuations are at their lowest.

When the economy recovers, these businesses often bounce back quickly, and investors who bought in during the low points can see significant returns.

For auto parts suppliers like Aptiv (APTV), the current challenges could become opportunities if interest rates continue to drop and consumer demand for vehicles increases again.

The company is known for its advanced technology and solutions that help automakers produce safer, more connected vehicles.

Aptiv specializes in the electronic systems needed for vehicle safety and performance and focuses on making vehicles more secure, comfortable, and user-friendly.

Despite the recent economic headwinds, the company has demonstrated resilience. Its revenue growth over the past five years has been solid, driven in part by strategic acquisitions that have expanded its technological capabilities.

With the potential for rates to decline further and vehicle production to pick up again, Aptiv could be well-positioned for growth.

Financially, the company has seen stable performance over the past few years. While margins took a hit during the pandemic, they have been recovering steadily.

The company’s recent moves, including a major share buyback program, reflect management’s confidence in Aptiv’s future.

The buyback plan, which accounts for over 25% of its market value, shows that the management believes its shares are undervalued and that the company is set for long-term growth.

Aptiv is also making strategic investments in new technologies. The company recently acquired Wind River, a software platform provider that enhances Aptiv’s ability to offer cloud-based solutions for vehicles.

These investments should help the company stay competitive as the auto industry continues to evolve, with more emphasis on electric and software-driven vehicles.

While the road ahead for the automotive sector may still have bumps, Aptiv’s solid foundation and strategic focus could make it a smart bet for long-term investors.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

Today’s highlight, Aptiv (APTV) is one of the top stock picks from FA Alpha 50 this month. To see more stock picks like this, become an FA Alpha and get access to FA Alpha 50.