| Alpesh Patel Trading Champion |
I've got another "Readers Choice" stock to analyze for this week's Stock of the Week. Remember, this is to give you a sort of "tip of the iceberg" analysis of the kinds of things I look at when I look at a company. The company is BorgWarner (BWA). Borg provides solutions for combustion, hybrid and electric vehicles (EVs). Now, when you see the words "electric vehicle" and "hybrid," you might think, "Surely it should be doing well." With its focus on e-propulsion (for electric motors), drivetrains and fuel injection, Borg provides the solutions EVs need. It also counts Ford and Volkswagen as customers. Very good. It's a well-diversified company - it operates globally and has a diverse product range that serves light, commercial and off-highway vehicles. When we look at the stock chart, it's had some up and down years. In 2017, it went up 27%. In 2018, it went down 32% (but then again, that wasn't a good year for the market more broadly). In 2019, it ended the year up 25%. In 2020, down 11%. Back and forth we go… and so far this year, it's down 15%. The reader who submitted this stock must be asking, "Well, what does it all mean?" So let's look at some of the financials. [This NEW Electric Vehicle Stock Could Help Fund Your Retirement. Click Here to Find Out How.] Overall, they're not too bad. Looking at my Growth-Value-Income rating, it comes in at a 4. That's a bit weak in terms of valuation, revenue growth and dividend yields. Borg's cash return on capital invested (CROCI) is 5.1%. That's lower than I would like. Remember, CROCI is a measure of the ability of a company to generate cash based on the capital invested. BorgWarner's 5.1% CROCI is not in the top quartile of all stocks. From the research we do in my GVI Investor, we know that a company in the top quartile by CROCI should generate about 30% per annum over the long term. So this stock doesn't meet my requirements for CROCI or my GVI rating. But again, the financials are not too bad. We're not talking about a company in risk of bankruptcy or anything. The stock is up 9% over the past six months. The Sortino ratio - a measure of reward versus risk - is a little low at 0.1. I'm happy with the return alpha at 1.31%. That means the stock is outperforming the market in the sense that it's generating excess returns. And with volatility at 18.06%, I'm happy with that as well. Volatility under 20% is always a good sign. Now, with a deeper dive into the financials, I can see a lot of positives. Turnover, net asset value and profitability are all good. Pretax profits have come down after a strong rising trend. I put that down mainly to COVID-19. We really weren't using our cars much during the beginning of the pandemic, were we? But I should expect something of a return back to normal now. The forecast price-to-earnings ratio of 9.4 is not too bad at all, especially if Volkswagen get its act in gear (so to speak) and Ford does the same, really doubling down on EVs and taking on Tesla and the like. Taking all of these metrics into consideration... BorgWarner has a lot going for it, but it doesn't meet the high bar to make it onto my list. To see me go through this analysis with charts and graphs of all the important financials, click on the image below to watch this week's Stock of the Week. While BorgWarner doesn't make the cut, there are several stocks I'm excited about that do - all with high GVI ratings and double-digit CROCIs. You can learn more about them right here. And keep the tickers coming! Send an email to mailbag@manwardpress.com. Happy hunting, Alpesh Want more content like this? | | |
Alpesh Patel | Trading ChampionAlpesh Patel is an award-winning hedge fund and private equity fund manager, international bestselling author, and entrepreneur. He is the founder and CEO of Praefinium Partners, a Financial Times top FTSE 100 forecaster, and a senior Dealmaker in the U.K.'s Department for International Trade. As a recognized authority on fintech, online trading and venture capital, his past and current client list includes American Express, Merrill Lynch HSBC, Charles Schwab, Goldman Sachs, Barclays... and more. | |
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