BorgWarner Inc.: High Expectations from the Chinese Auto Market

The U.S. stock market continues on the path of recording straight losses for the second day in 2015 and for the fifth day in a row to drop to somewhere around 1996. However, instead of being worried about the general market direction, I think it is important to explore possibilities in stocks that are not likely to suffer much as the market continues to record losses.

In today’s piece, we will examine the options of BorgWarner Inc. (NYSE:BWA). BorgWarner Inc. with its market capitalization of $11.79B is a supplier of engineered automotive systems and components for powertrain applications.

The Company’s products are manufactured and sold across the world, to original equipment manufacturers (OEMs) of light vehicles (passenger cars, sport-utility vehicles (SUVs), vans and light-trucks). The Company’s products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications).

Why BorgWarner is Hot Today

BWA Chart

One of the main reasons BorgWarner is hot today is the optimistic outlook evident in its share price. The chart above shows how the shares of BorgWarner have traded in the last one year. You will notice that the shares of BorgWarner had recorded an impressive gain from the start of 2014 until it reached a 52-Week high of $67.49.

However, the stock entered pullback zone soon after reaching its 52-week high until it dropped to a 52-Week low of $50.22. You will also observe that stock has had a resistance point at $59 in May, November and December as shown by the red line. An interesting point to note about the red line is that the stock soared to its 52-week high after breaking out above the resistance point while it recorded a drop to stay around its 52-Week low (Purple) every time it broke down below that resistance point.

Interestingly, shares of BorgWarner have been garnering attention lately as analysts expects a potential 23% spike in its share price this year to $67. In addition, the stock is operating below its 50 and 200-day moving averages even as the RSI of 37.11 indicates that the stock is practically “oversold”; hence, the smart money is long BWA.

Strategic Positioning in China

Another reason I am optimistic about the prospects of BorgWarner in 2015 is that the company has strengthened its position in China as it expects about 38% of growth to come in from China region. The Chinese auto market is the world’s largest auto market and it is expected to grow at an average of 8% between 2011 and 2020.

To key into the emerging megatrend in the Chinese auto market, BorgWarner has started its second turbocharger production facility in China for the production of high-end turbocharging technologies for key automakers. The importance of BorgWarner’s turbocharging technologies is captured in a report in which it was stated “turbochargers have helped downsized engines, improve fuel economy by as much as 20 to 40 percent in gas and diesel form… About 49-million turbocharged vehicles will be sold annually by 2019, generating $12 billion in revenue.”

How to Trade BWA Options

I am optimistic about the prospects of BorgWarner in 2015 and I strongly believe that the stock has what it takes to reward the patient investor. I recommend buying the BWA Apr 2015 50.000 call (BWA150417C00050000) at an asking price of $5.00


— Daily Option Alerts

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