BorgWarner Inc. ($BWA) is a supplier of automobile components. The company's key customers are Ford and Volkswagen, which account for 10% and 9% of the company's 2021 revenue, respectively. Whereas geographically, Europe & Asia are the most critical regions for the company, with 70% of the total revenue being generated in these two regions.
BorgWarner Inc. benefits from the secular trend around clear air regulations, the popularity of sport utility and crossover vehicles, and consumers' demand for fuel economy worldwide.
BorgWarner Inc. is currently trading at a PEG Ratio of 0.62, which is why we have picked the stock today in our Lynch Picks. The company's ability to consistently innovate and the high switching cost of its products provide it with a unique economic moat. In addition, the company's key customers (big automakers) are willing to pay a premium for a differentiated product that meets the fuel efficiency and emissions regulatory requirements.
Despite the worsening operating environment, the company's stock has outperformed the market in 2022. Automobiles are a cyclical industry and are heavily affected by the deteriorating economic outlook. In the case of BorgWarner, which supplies engine-related systems, the demand is relatively inelastic since there is a higher degree of complexity involved in making the product, and there are only a few major suppliers, which continue to provide support in a bleak macro-environment.