DAN or BWA: Which Stock Is a Better Auto Parts Manufacturer?

On a positive note, auto parts manufacturing space has witnessed a surge in demand with increasing sales over the past few years. Rise in new car sales encouraged ramped-up vehicle production, leading to sales growth for the companies that engage in auto parts manufacturing.

The Zacks Industry Rank for Automotive – Original Equipment is #72 (placing it at the top 27% of the 250 plus Zacks classified industries).

A few major U.S.-based companies in this space are Dana Incorporated (DAN Free Report) , Tenneco Inc. (TEN Free Report) , BorgWarner Inc. (BWA Free Report) and Magna International, Inc. (MGA Free Report) .

Of the four, both Dana and BorgWarner hold a Zacks Rank #2 (Buy), while Magna and Tenneco carry a Zack Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Auto parts manufacturing is likely to get a boost in demand as a result of increased focus on the launch of autonomous and electric vehicles.

Also, to comply with emission standards, demand for fuel efficient components will amplify, benefitting the manufacturers in turn.

Now let’s do a comparative analysis on two original equipment manufacturing company stocks i.e. Dana and BorgWarner to figure out the more attractive pick of the two.

Valuations

For valuation, we are considering price/earnings (P/E) ratio, which measures a stock’s current share price relative to its per-share earnings. A low P/E ratio reveals that a stock’s price has declined or its earnings performance has improved. Stocks with low P/E tend to be better options than others.

In the trailing 12 months, Dana’s P/E ratio is 12.7x, whereas that of BorgWarner is 14.3x.

Dividend Yield

The dividend yield for BorgWarner has been higher than Dana. The yield percentage of BorgWarner is 1.27, while the same for Dana is 0.75.

Earnings Estimate Revisions

Over the last three months, Dana’s stock has seen the Zacks Consensus Estimate for quarterly and annual earnings being revised 14.9% and 4.3% upward, respectively. Whereas BorgWarner’s stock has seen the Zacks Consensus Estimate for quarterly and annual earnings being raised 6.3% and 3.8%, respectively.

Earnings Surprise History

Evaluating the surprise history recorded by both the companies, we conclude that both Dana and BorgWarner outpaced their respective Zacks Consensus Estimate in each of the trailing four quarters. However, the former’s average positive earnings surprise is 38.94%, while the latter’s average beat is 6.65%.

Price Performance

In the last six months, Dana’s shares have rallied 42.9% while the BorgWarner stock has gained 21%. Though both the stocks have outperformed the industry it belongs to, Dana scored better with a higher percentage.

Conclusion

Among various metrics for review, BorgWarner fares better than Dana on one count. However, with respect to all other criteria for consideration, including valuation, earnings estimate revisions, earnings surprise history and share price movement, Dana surfaces as a more apt choice for investors than BorgWarner.

Zacks Editor-in-Chief Goes “All In” on This Stock

Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.

Download it free >>

CalAtlantic Homes boosts Atlanta presence by acquiring of Home South Communities

CalAtlantic Homes, which is set to be acquired by Lennar in the first quarter of 2018 in a $9.3 billion deal, is doing some acquiring of its own. CalAtlantic announced this week that it is increasing its footprint in the Atlanta market by acquiring Home South Communities, one of the largest privately held homebuilders in the Atlanta metro market.

SCD rebrands to Oakham Wealth Management amid plans to widen distribution

SCD&Co, the wealth management business that has set up a strategic partnership with John Ventre and François Zagamé for their new venture KallCap Solutions, is set to rebrand to Oakham Wealth Management as it embarks on plans increase the number of partnerships and widen its distribution network.

Are You Beating the Market This Year?

With all of the major indexes trading at or near their all-time highs, there are plenty of investors handily beating the market.

So why are so many other investors underperforming the market?

Could it be that one of the reasons why so many people are not seeing the kinds of returns they want is because they don’t know of new stocks to get into? They find themselves in mediocre stocks because they don’t know of anything better instead?

I think that for some, their knowledge or ‘universe’ of familiar stocks is relatively small and this limits their opportunity of getting into better ones.

Which Half Are You In?

Nearly half of the companies in the S&P are beating the index and showing positive returns this year. But that means roughly half of the stocks in the S&P 500 are underperforming the Index.

Even ‘good’ companies like Kellogg; they’re down -10.53%. Or Macy’s, which is down -28.26%. Or even Mattel, down -46.93%. So what gives?

I don’t single these out so you can feel bad if you have them. But instead, to stop and think about ‘why’ you have them.

Nobody invests so they can underperform the market. But if you are — why? You don’t have to. If you’re underperforming the market, that means you have more of these types of laggards in your portfolio than leaders.

More . . .

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Sunday Deadline: Free Copy of Finding #1 Stocks

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The book starts you toward mastering the system without attending a single class or seminar. From 2016 – Q3 2017, while the S&P 500 gained 27.9%, some of the strategies you’ll discover produced gains of 101.1%, +189.3%, even +218.4% and more. Opportunity ends Sunday, December 17.

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How the Other Half Lives

Of course, there are a lot of big names beating the S&P too. Take Oracle, or McDonald’s, or Netflix for example. All are outperforming the S&P with gains of 31%, 41% and over 50% respectively.

But now let’s move outside of the S&P.

Did you ever hear of a company called Entegris? What if you did? It has outperformed the market by gaining 65.08% since the start of the year. Or Axcelis? They’re up 97.94%. Or Kronos Worldwide? Up over 115%. (By the way, these are all Zacks #1 Rank stocks.)

There are hundreds and hundreds of stocks producing fantastic gains that many people may never have even heard of.

What about you? How many times have you heard about a stock or read about a stock that skyrocketed — only to think to yourself; “if only I knew about that stock ahead of time, I would have been in that”.

Expand Your Universe and Pick Better Stocks

Increasing your stock knowledge and awareness of new and better stocks is easier than you think. And you don’t have to reinvent the wheel.

• For example, over the last 29 years, the Zacks #1 Rank stocks have beaten the S&P 500 in 24 of the last 29 years, with an average annual return of 25.3% a year vs. the market’s 10.2%. That’s nearly 3 times the returns of the S&P with an 82% annual win ratio.

• Stick with the top industries. Since roughly half of a stock’s price movement can be attributed to the group that it’s in, you’ll significantly increase your odds of success by focusing on the best groups. By how much? Our tests have shown that the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of 2 to 1. And the top 10% of industries outperform the most.

• Or select your next stock from a proven profitable stock picking strategy — like our ‘Filtered Zacks Rank 5’ strategy which was up over 70% last year; or our ‘New Highs’ strategy which was up 95%; or the ‘Value Method 1’ strategy which was up a whopping 153% last year!

Once you know what to look for, and how to pick better stocks, it can transform your portfolio.

You don’t need to turn yourself into an analyst to beat the market. Just focus on what works, and apply those methods consistently.

Leadership

For most of us, our investments are the largest, most important chunk of money we’ll ever be responsible for in our entire life.

And if it isn’t now, it likely will be one day.

The leaders in the past (stock names we’re all too familiar with) will likely not be the leaders in the future.

But you can stay ahead of the pack by following some simple rules and methods that have proven to work.

And don’t be afraid to consider a stock you may never have heard of before. There was a time when some of the best stocks in your portfolio today, were brand new to you before you bought them. And now they’re one of your top performers.

The next time you read about or hear about a stock that’s skyrocketed in price; instead of thinking, ‘I could have been in that had I known about it’ — wouldn’t it be great to say, “I’m in it!”.

Where to Start

There’s a simple way to add a big performance advantage for stock-picking success in 2018. It’s called the Zacks Method for Trading: Home Study Course.

With this fun,interactive online program, you can master the Zacks Rank without attending a single class or seminar. Do it online in your own home at your own pace. It covers the investment ideas I just shared and guides you to better trading step by step.

You’ll quickly see how to get the most out of the system that has more than doubled the market since 1988. Discover how to identify what kind of trader you are, how to find stocks with the highest probability of success, and how to trade them so you can consistently beat the market regardless of where stock prices are headed. The course also goes over some of our best-performing strategies from a variety of different trading styles, and it helps you create and test your own.

Today is the perfect time to get in. We’re giving participants free hardbound copies of my book, Finding #1 Stocks, a $49.95 value. We’ll even cover the shipping. Its 300 pages unfold virtually every trading secret I know to beat the market.

Please note: Copies of the book are limited and your opportunity to get one free ends midnight Sunday, December 17. So if you’re interested, be sure to check this out right now.

Learn more about Zacks Home Study Course and claim your free book >>

Thanks and good trading,

Kevin

Zacks Executive VP Kevin Matras is responsible for all our trading and investing services. He developed many of our most powerful market-beating strategies and directs the Zacks Method for Trading: Home Study Course.

Seattle passes sweeping short-term rental laws, limits Airbnb hosts to two units

Homeowners and landlords in Seattle who want to rent out their property via short-term rental services like Airbnb are about to have a whole new set of laws they have to comply with. Most notable among the new laws passed this week by the Seattle City Council is a new regulation that limits short-term rental hosts to only two units.

Vendor Surf launches housing and mortgage services search engine

Vendor Surf is a mortgage tech company out of St. Louis and they’ve got big plans.

Their latest venture is the launch of a search engine of the same name, to help those who are searching for assistance in any part of the mortgage macrocosm.

Need contact info for Safeguard Properties, for example? Vendor Surf can find that for you.

The custom filters allow for multiple different vendor categories to help narrow down wider searches.

The search function is free, though the company offers a range of paid services as well.

Here’s more of an explanation from the statement released today:

In addition, Vendor Surf works as a single educational resource, allowing searchers and directory vendors to promote events, white papers, trade shows, webinars and trainings. It includes “My Dashboard” that lets searchers track their history of vendor profiles viewed and bookmark them for later reference, a “Solution Showcase” that highlights the very latest industry innovations, and weekly polls to gauge what mortgage professionals think about pertinent issues that are impacting the industry.

Part 2: Everything you need to know about entering the mortgage finance market

Ownership of Consumer Residential Mortgage Laws

Entities that solely own consumer residential mortgage loans and do not participate in the origination or servicing of those loans have more limited licensing requirements at the state level and are probably not subject to supervisory oversight by the CFPB. Additionally, provided the loans are not considered to be high-cost loans under federal or state laws and do not finance the purchase of retail goods or services, such as loans to purchase a new roof or siding sold by a dealer, the legal authority of a borrower to raise or pursue claims related to violations of law committed by the originator generally is limited.

A purchaser of residential mortgage loans is, however, directly subject to a limited number of federal consumer regulatory laws. For example, when a person becomes the owner of an existing mortgage loan by acquiring legal title to the debt obligation, that person must provide a written transfer of ownership notice to the borrower within 30 days of the date of transfer.  Purchasers of loans and owners of servicing rights are also subject to antidiscrimination laws and certain privacy and information security laws.

In contrast, the holder could be subject to certain state and federal consumer credit laws if it participated in the initial credit decision of the originator, such as loans purchased on a prior approval basis before the originator elects to make the loan, or provided the funds with which the originator made the loan. In these cases, the line between origination and purchase may be blurred, and, in some cases, the law treats the purchaser as an indirect lender. Many secondary market mortgage loan purchase programs are structured so that these laws are not triggered. 

An entity that purchases a non-defaulted residential mortgage loan in good faith without knowledge of the violation of law is not legally subject to claims and defenses that may be asserted against the originator. There are, however, a few exceptions to this rule.

For example, affirmative and defensive claims may be brought against an owner of a loan for certain violations of the Federal Truth in Lending Act committed by the originator that are apparent on the face of the documents being assigned to the purchaser. Purchasers generally protect themselves from this risk by performing due diligence on the mortgage loans they purchase. In addition, a holder could be subject to defensive claims by the borrower in a foreclosure action that the lender failed to satisfy the ability to repay or loan originator compensation requirements under TILA.

At the state level, there are also a limited number of broadly drafted consumer residential mortgage loan origination statutes that appear to also apply to the mere ownership of consumer residential mortgage loan. In these situations, it is prudent for an owner of consumer residential mortgage loans to either own those loans through a licensed entity or to use an alternative holding vehicle that is not subject to state licensing. That vehicle is commonly a trust where title to the mortgage loans is held by a national bank or federal savings bank trustee exempt from the underlying licensing statute because of its status as a federally chartered banking institution. 

This is why so many nonbank-sponsored secondary market buyers of consumer residential mortgage loans have opted to own their loans through trusts as opposed to other legal entities. In the highly developed RMBS market that existed prior to the credit crisis, securitization trusts holding consumer residential mortgage loans in the name of the trustee were the most common issuers of RMBS securities.

In addition to the risks noted above, a consumer residential mortgage loan purchaser should consider certain derivative legal risks. For example, under the Dodd-Frank Act, the CFPB may seek to hold a person liable for knowingly or recklessly providing substantial assistance to a covered person who engaged in unfair, deceptive or abusive acts or practices. This generally is analogous to aiding and abetting prohibitions under common law, which are discussed below, although there is no private right of action under the Dodd-Frank Act for such substantial assistance. 

Financing Consumer Residential Mortgage Loans

Financing pools of consumer residential mortgage loans is the least regulated of all the various activities from a consumer credit law perspective. Financing arrangements, whether a repurchase transaction or a regular-way loan agreement, sidestep most of the regulatory requirements mentioned above, because they are wholly commercial transactions. If appropriately structured, the regulation generally is not implicated, because the loan is extended against a pool of consumer residential mortgage loans. There are two caveats to this general principle. First, should the lender be so embedded in the approval process for the origination of consumer residential mortgage loans that ultimately will be financed through a lending arrangement, it is possible that the lender could be implicated as an aider and abettor in a regulatory violation brought by a state or federal regulator against the mortgage loan originator.  The Dodd-Frank Act includes a provision regarding aiding and abetting. However, aiding and abetting claims require knowingly or recklessly providing substantial assistance in the violation of law, and the facts and circumstances surrounding this type of extension of regulation would be at the extreme margins of ordinary consumer residential mortgage loan origination and finance activities and could easily be prevented by proper protocols established by a lender for funding a consumer residential mortgage loan origination program.

The second caveat is that the exercise of remedies by the lender may require the temporary ownership by the lender of consumer residential mortgage loans prior to arranging for the disposition of those loans.  In this situation, the regulations mentioned above relating to the origination, servicing and ownership of consumer residential mortgage loans could apply. If the lending entity is a bank, then the lender could easily own loans without further concern about the reach of state licensing statutes to its loan ownership activities. If the lending entity is not a bank, it could form a loan ownership trust with a national bank trustee similar to what we have described above in order to facilitate the disposition of repossessed mortgage loans. Mortgage loan servicing could be handled by a licensed third-party servicer to the extent that servicing on the repossessed loans was moved away from the original servicer.

Conclusion

There are significant differences between the regulations governing originating and servicing, owning and financing pools of consumer residential mortgage loans. This article offers a very simple and high-level overview of those differences. Nonbank financial participants considering an entry or reentry into the residential mortgage finance market should be mindful of these differences and how the varying regulatory frameworks will impact their activities.

Click here to read part one. 

David Stevens: Here’s the MBA view on GSE reform

Last week, I read with great interest various stories in the media that focused on House Financial Services Committee Chairman Jeb Hensarling’s comments regarding the future of Fannie Mae and Freddie Mac.

These stories, along with those reporting that Sens. Bob Corker, R-Tenn. and Mark Warner, D-Virginia, have circulated GSE reform language to their Senate colleagues, gives me great hope that Congress is about to act on reforming the secondary mortgage market.

There is, however, one piece of the conversation that concerns me – the idea that the mortgage market could best be served by a system that entails revising the current charter of Ginnie Mae and allowing a new Ginnie Mae to apply its guarantee to private sector mortgages. Though an interesting concept, MBA and its members don’t believe this would be the best approach.

In 2016, MBA created a diverse member task force, with executives who have hundreds of years of experience in the primary and secondary mortgage markets, to consider an array of options in addressing the future of the GSEs. The result was a comprehensive plan to reform the secondary mortgage market.

Specifically, the task force examined the Ginnie Mae concept and identified a variety of concerns that caused them to gravitate toward a different end state, one with federally-chartered mortgage guarantors who are solely involved in the secondary mortgage market. 

Below are a few reasons that this approach wouldn’t succeed:

  1. The MBA model would maintain the “bright line” that separates the primary market from the secondary market. For decades, the industry has advocated for the bright line in order to allow lenders to compete for business (which is good for consumers) without being faced by a federally-backed competitor who operates on both sides of the market, and can thereby utilize market power in one segment to control market share in another. The Ginnie Mae model would eviscerate the bright line by having primary market lenders also issue securities. MBA’s task force feared that this approach would ultimately result in a market dominated by larger lender-aggregators.
  1. The MBA model would level the playing field for lenders of all sizes and business models, providing a more competitive primary market for borrowers. MBA’s model achieves this by requiring guarantors to price at the loan level for credit risk and not offer volume-based discounts or credit waivers. MBA’s plan also requires guarantors to maintain a cash window and allow lenders to sell loans on a servicing-released or retained basis. The Ginnie model would struggle to achieve a level playing field, as larger lenders with access to greater liquidity, would have the ability to become issuers, where smaller lenders wouldn’t. Just look at the number of Ginnie issuers today versus the number of lenders who utilize the GSEs.
  1. The MBA model would go further to minimize transition risk and disruption to the mortgage market. Our proposal advocates limiting changes to those necessary to remedy flaws in the prior system, while preserving key infrastructure to minimize any potential disruption in the market for home financing. That is one of the reasons why we suggest a re-chartered Fannie and Freddie could be the first two guarantors. Transitioning to a Ginnie model would require a completely new build, as Ginnie Mae isn’t currently designed for the conventional market. It’s not clear what benefits would be created from forcing the market to an entirely new securitization infrastructure.

I don’t want this to come off as overly negative toward the Ginnie Mae model, or the great amount of thought that its advocates have put into this issue. We just believe there is a better way and want to work with policymakers to create a system that provides for a liquid, stable mortgage market that best benefits borrowers. 

Bitcoin Fever Running Stocks Higher

The buzz around bitcoin is deafening.  There is so much noise out there about people begging to short it, those saying that it is going to $50,000 or even $500,000.  So much talk and so much to learn.  

I am going to go on the record as a believer in the idea of cryptocurrency and that it is only a matter of time before there is worldwide adoption.  Central banks have controlled currencies for the past several decades and we have seen far too many instances of runaway inflation destroying currency.  Those days are coming to an end.

Over the weekend I finally dipped my toe into the cryptocurrency market and I wrote all about it in my FREE Tech Stock Newsletter.  You can sign up for that FREE newsletter here

Coinbase

One more shameless self-promotion before I get to the stocks that investors can look at to participate in the Bitcoin Boom.  If you haven’t opened an account with Coinbase, then use this link: https://www.coinbase.com/join/5289987bc1d5d79097000273 and you and I will both get $10 of free Bitcoin.

ETFs

In the near term, there will be a multitude of ETF’s coming to the market that will boast to have significant exposure to bitcoin and other cryptocurrencies.  They will also have a significant amount of exposure in stocks that are in the same space.  

The idea is that some stocks are already on the short list of ETF managers 

Squared Up

One stock that has already announced that they are helping people get exposure to bitcoin and other crypto’s is Square (SQ Free Report) .  The stock is a Zacks Rank #3 (Hold) but has the divergence that I love to see.  The divergence I am speaking of is an F Value style score and an A for Growth.  Growth investors and value investors are inherently looking for different things so when I see that I know that I am on the right path.

Stocked Up

Overstock (OSTK Free Report) was among the first stocks that started accepting Bitcoin and that has driven a lot of early performance.  It is also a Zacks Rank #3 (Hold) but the style scores are not as good.  I have seen that this stock has become a favorite of the shorts, with 67% of the float sold short.  That is absurdly high and the potential for a short squeeze is so high that it might be worth a stab.

Imagine hearing on the next OSTK earnings conference call that they have collect 1,000 bitcoins a day… which will also legitimize the currency but will also add an element to the story the shorts likely don’t see coming.

Zacks Rank Missing

I wanted to throw out two other ideas here.  One is Riot Blockchain and the other it MGT Investment – the later of which I own. Both of these plays are interesting in their own right, but without research coverage, there is no Zacks Rank.

Blockchain Idea

One last idea I have is based on the idea of Blockchain… or the ledger of recording all the transactions of bitcoin exchanges.  This technology has been called a game changer and I have done very little in terms of research on how to benefit from it.  The thing I do know is that it requires thousands of very powerful computers and those computers need powerful chips.  Nvidia NVDA is clearly the leader in that space, so that is my blockchain play.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don’t buy now, you may kick yourself in 2020.

Click here for the 6 trades >>

Is the next leader of the MBA likely to be female?

The Mortgage Bankers Association today announced that it has retained Spencer Stuart, a leading global executive search and leadership advisory firm, to assist with the search for the Association’s next President and CEO.  

Current President and CEO, David Stevens, announced his plans to retire this past October and he will remain in his position until September 30, 2018.

If memory serves, Spencer Stuart also helps with placing CEOs at the head of Fannie Mae and Freddie Mac. They’re a major player in the executive search space, so it’s no surprise the board went with them.

Here’s a thought bubble: Considering Spencer Stuart recently released a white paper vaunting the importance of female leadership, will we get to see a female at the head of our most important trade group?

Considering the title — Solving the Disappearing Women Problem — the answer seems like a “yes.”

The whitepaper provides quotes and research making the case for more women at the top. And progress is being made, women and minorities hold key positions at the MBA, so they can hardly be described as lacking in diversity. The HousingWire Women of Influence award continues to grow not just in number but in quality of applicants. And finally, we sponsored with visionary, key gender-sensitive mortgage conference coming in January, called NEXT, which will provide an even playing field to all participants.

However, providing a female as the head of the MBA — which has yet to happen, though females served as voluntary Chairpersons in the past — would help push this issue ahead even further.

As the Spencer Stuart authors, Janine Ames and Christina Coplen, note: “Despite ongoing attention to the issue of gender disparity in leadership, progress for women remains mixed.”

“With greater numbers of women “disappearing” at successively higher levels of many organizations, companies that want to increase the number of women in leadership roles need strong advocacy from the CEO, an assessment approach that minimizes bias and assumptions about culture fit, support for women hired from the outside and a willingness to take bold actions.”

It may be time for all major organizations in mortgage finance to take note: McKinsey found that companies in the top quartile for gender diversity were 15% more likely to have financial returns above their respective national industry medians, according to Ames and Coplen.

That’s a boost we should all be aiming for, we just need the right leader to show us the way forward.