3 Companies That Will Win The Driverless Car Revolution

| April 27, 2016 | 0 Comments

The boom we’re seeing in the auto industry is technological innovation at its finest. However, the real winners from the rise of ride-sharing apps and driverless cars lie in three unexpected stocks so integral to cars that they will profit no matter where the market goes. 

Driverless cars are coming, it is now just a matter of time until it become ubiquitous.

Meanwhile, Tesla (NASDAQ: TSLA) and the media remain hung up on electric vehicles.

Still, there’s a big trend in the auto market and it has to do with technology in general. What we’re seeing today is a boom in auto tech.

You have Uber and Lyft, two of the most popular ride-sharing services, rendering car ownership unnecessary for a large swath of urban dwellers. Ford (NYSE: F) is also said to be developing its own ride-sharing app. General Motors (NYSE: GM) bought the technology of failed ride-sharing app Sidecar and has also invested in Lyft.

Then there’s the idea that GM may also be looking to develop driverless cars that would then be used in Lyft’s ride-share program.

On the driverless car front, Google’s (NASDAQ: GOOG) autonomous cars have already driven more than a million miles and BMW has been testing driverless cars for years. Meanwhile, Apple (NASDAQ: AAPL) and Tesla are also said to be working on driverless programs.

Countries overseas, like Singapore, are already setting up driverless taxis and “pods,” which are small car-like driverless vehicles that will be ferrying passengers by year-end.

Needless to say, there’s a lot going on in the auto industry right now. And with that, there appears to be no sign of a clear winner.

But after digging deeper into the arms race in autos, there are a few select winners. Besides the consumer, the companies that supply auto companies with must-have products will be the biggest winners.

First, ride sharing and driverless cars will make getting around a lot easier. More driving and miles driven will be good news for auto parts companies. This comes as regardless of who, whether it be Ford, GM, Tesla or a dark horse we haven’t heard of yet, takes the most market share they will still have to meet safety standards and purchase the most basic auto parts like seats and tires.

Now, with all that in mind, here are the top 3 companies that will be the real winners from the rising auto tech boom:

Auto Boom Stock No. 1: Delphi Automotive (NYSE: DLPH)

Delphi AutomotiveDelphi has a rather unique past, having spun off from GM in 1999, it went bankrupt in 2005 and didn’t come out until 2009. But, it’s now stronger than ever with some of the best growth opportunities in the industry.

It’s also still the largest U.S. auto parts maker. And trading at just 11 times next year’s earnings estimates, it’s on the cheap side. Delphi has said that its sensors will be used whether driverless cars are 10% or 100% of the market. Its product areas, such as electronic devices and powertrain, should remain in high demand by customers. Government regulations and the commitment to safety will keep automakers buying Delphi parts.

The other reason to love Delphi is that it operates in a number of industries and has a global presence, meaning it’ll be able to capitalize on the growth of auto sales in emerging markets.

Auto Boom Stock To Own No. 2: Autoliv (NYSE: ALV)

AutolivSticking with the safety theme, Autoliv is a maker of sensors that improve safety measures in cars and was the first to introduce side-impact airbags.

And again, it’s not just about driverless cars, all cars could use better pedestrian detection cameras and night vision sensors that detect and help avoid incoming obstacles. Autoliv owns 7% of auto-related safety patents, but is still innovating – about 7% of its sales is spent on research and development.

But when driverless cars do become a reality, Autoliv will still be able to benefit, with the opportunity to license its products to manufacturers. It’s also a play on more driving and stricter standards across the globe, notably in emerging markets. As consumers become wealthier in these areas, the demand for better safety measures will increase. It wins from a rise in auto sales worldwide, but also from increased safety content in cars.

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Auto Tech Boom Stock No. 3: Mobileye (NYSE: MBLY)

MobileyeThere are certain companies that will be driverless car winners, Harman International (NYSE: HAR) included, which provides entertainment systems for cars. Not having to pay attention to the road means there’s an opportunity for more robust video and interactive entertainment packages in cars. Look for Harman to capitalize on this.

However, if you really want to play the tech boom happening within the driverless car industry, there is one company that’s more of a pure play.

Mobileye is a “computer vision” and machine learning company. Basically, it’s known for driver assistance systems and driverless technologies. In simplistic terms, the Mobileye technology helps prevent collisions. Safety has always been paramount in the auto industry, and with the incident of Google’s self-driving car running into a  bus earlier this year, look for there to be even more scrutiny surrounding crash prevention.

Now, although Tesla has its own issues, it’s still innovating and bringing to market cars that people seem to be resonating with. And, with that in mind, Mobileye has a deal with Tesla to power their autopilot feature.

In the end, ride-sharing is very exciting right now. When driverless cars finally go mainstream it’ll be another major step for car makers and travel. All of which is changing how consumers think about car ownership. But picking who, or how, these cars get to market and what marks the next step in the auto boom is anyone’s guess. The ultimate play is the auto-parts companies that will be winners regardless, such as seats, tires, and new safety content will all still be needed. The three above should capitalize on the auto tech boom.

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Marshall Hargrave is a contributor to Investors Alley. He is also the managing partner of Bridgewater Investments LLC, a boutique equity research company. Bridgewater provides specialized research for deep value securities and certain special situations.

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