Turning defensive in Q1: Upgrade to OW Michelin, Nokian & Stabilus, downgrade Conti (N), Schaeffler (UW) and Hella (N)
We are turning defensive in our European Autos coverage forecasting limited global growth, challenging pricing environments, rising raw material headwinds and technological shift as reflected by our JPMC “EV Tax”.
Downgrade Schaeffler to UW, upgrade Michelin and Nokian to OW and downgrade Conti and Hella to Neutral.
As a result of implementing our EV tax we cannot recommend simply going OW suppliers vs OEMs. It becomes a stock by stock strategy where on the OEM front we would favor restructuring stories like VW or best in class execution such us Daimler and PSA. On the supplier front we have turned defensive owning tire stocks even with rising raw materials as well as growth and margin re-rating stocks like Valeo and Faurecia. We are downgrading Continental to Neutral (mainly on valuation grounds), Hella to Neutral (as we wait for clarity on reducing R&D expenditure), Schaeffler to UW and upgrading Michelin, Nokian and Stabilus to OW. We remain OW on Faurecia, Valeo (AFL), Volkswagen (AFL), PSA and Daimler. Neutral on FCA, Leoni, BMW and Renault. Remain Underweight on Volvo and ElringKlinger.