For your 401(k), I like Lear (LEA).

I’ve liked Lear in the past, and got out of it too soon. These guys have carved out a great niche in the automotive industry, and it just got better.

Recently, they acquired a company called Eagle Ottawa, the world's largest supplier of leather to the auto industry. (with an estimated $1 billion revenue annually, it was run by the same family for decades and decades, a quality company, it should be accretive immediately).   

The great news is business since 2011 has grown at 24% compounded annually. Now the core business for Lear, it’s the perfect match: seats, operating margins in last quarter +5.7% sequentially. Electrical is also good for them. (19th consecutive quarter of year-over-year margin improvement there as well.)

For the overall auto industry, the second quarter vehicle production was choppy: Europe/Africa +2%, China +12%, North America +4.5%, India flat, Brazil was a disaster-- down 23%, Russia down 3%. Think about those numbers, then juxtapose them for the company who had a starkly different outlook with their recent gains. In fact, they gained market share. Europe and Africa up 16%, North America up 12.5%, Asia 10%, South America was down 13%, remember though Brazil down 23% for the industry.

The good news is most global regions will get better for the remainder of the year. Here’s a note: shares are changing hands at a PEG ratio of 0.60 and forward PE of 11... it's the personification of a "cheap" stock. It’s not share price. It’s the value there. So, we are chasing this, but i think the fair value is $130 at least.

And now let’s talk about Middleby (MIDD).

I absolutely love this company. It’s not a high-flying tech… it’s one of my favorite names out there.

We talk about all the hot restaurants, a lot of them which aren't publicly traded. But as an investor you don't have to guess the winners and losers -- because this company is a huge beneficiary from the fact that we do eat out more. In the second quarter, sales were up 16.8% with recent acquisitions, and 11% organically as gross margins edged to 39.2% from 37.5% and operating margin 17.8% from 16.6%. That’s good stuff.

The company is a juggernaut in each of its business segments. Now it’s in commercial food services, that’s a $4 billion global market, and sales in the last quarter were up 10%. The company is No. 1 in pizza, fast casual, convenience, deli, steak, chicken, pan Asian and casual. It is also in food processing sales, up 6.2% there. Number one in hot dogs, bacon and sausage. And then residential kitchens, almost 21% higher powered by Viking. International growth has averaged 20% each of the past five years.

Innovation is the key, as the company churns out amazing products to stay ahead of competition and take market share. They’re even working on food-waste-to-biofuel product.

Over the next five years, I predict it will grow two times the rate of the industry. That means they're taking a lot of market share. I’m going to be conservative, and say this is a $120 stock.

DISCLOSURES

Lear (LEA)

Owns

Family Owns

Firm Owns

Investment
Banking

CHARLES N N Y N
SUSAN N N N N
JOANIE N N N N
MATT N N N N
HITHA N N N N
TRACY N N N N

Middleby (MIDD)

Owns

Family Owns

Firm Owns

Investment
Banking

CHARLES N N Y N
SUSAN N N N N
JOANIE N N N N
MATT N N N N
HITHA N N N N
TRACY N N N N

 

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