(MONEY Magazine) – CONTRARIAN STRATEGY Why Auto-Parts Stocks Look Like a Deal

It's been a gruesome year for Detroit: General Motors and Ford debt downgraded to junk status; gas prices at record highs; and car-parts maker Delphi in bankruptcy. The S&P auto-parts index is down 29% through late October.

But not all auto-parts companies have labor-cost woes on a par with Delphi's, and many have sales growth that GM execs can only dream of. "Some decent stocks are coming under pressure," says Joseph Amaturo, an analyst with Calyon Securities. And that could mean the chance to buy good stocks cheap, if you are willing to go against the grain.

Amaturo likes engine maker BorgWarner (BWA) because Ford, GM and DaimlerChrysler accounted for less than half of sales last year. He also likes drivetrain manufacturer American Axle & Manufacturing (AXL), which could surge if gas prices moderate and SUV sales rebound.

Rod Lache, an analyst with Deutsche Bank, upgraded auto-interior and battery maker Johnson Controls (JCI) following the Delphi bankruptcy. The company, which generates less than 40% of sales from the Big Three, recently raised its fiscal 2006 sales and earnings estimates. Gentex (GNTX), a manufacturer of rearview mirrors, reported better than expected third-quarter earnings in October thanks to strong demand from Asian car makers.

Gentex is a favorite of Robert W. Baird analyst David Leiker, who wrote in an October report that the parts sector is now so cheap that contrarian money managers looking for bargains are "kicking the tires" on the stocks. To that end, Curtis Jensen, manager of the Third Avenue Small-Cap Value fund, a MONEY 50 pick, said wheel maker Superior Industries (SUP) and American Axle are good bets. "There's good reason to be skeptical" about the industry's prospects, he admits, "but it seems the pendulum has swung too far in terms of the share prices." Neither Superior nor American is burdened by debt, Jensen says, and that can help them handle rough roads. --PAUL R. LA MONICA

Motor City Madness

Shares of several auto-parts suppliers trade at bargain prices despite the companies' decent growth prospects.

NOTES: PEs and estimated sales are for fiscal 2006. Earnings growth is annual estimated five-year rate. Data as of Oct. 26. SOURCE: Thomson Baseline.

SHAKE-UPS, PART I Fidelity's Flagship Tries a New Tack

During a nine-year tenure in which his biggest bets didn't pay off, Fidelity Magellan manager Robert Stansky consistently failed to beat his peers or the market benchmarks. Now Stansky has retired, and Fidelity has tapped Harry Lange, manager of Fidelity Capital Appreciation, to turn around the company's flagship fund, down to $52 billion in assets from a high of $110 billion in 2000. In Lange, shareholders get an investor who, like the legendary Magellan manager Peter Lynch, isn't afraid to think outside the box of big-cap stocks, says Jim Lowell, editor of the newsletter Fidelity Investor. Lange has delivered a 3.6% annualized gain during the past five years, which put Capital Appreciation at the top of its class.

But that fund's assets are one-seventh of Magellan's. "It's tough for a solo manager to do well managing a $50 billion fund," says Christine Benz of fund watcher Morningstar. What to do? Clearly, there's no reason to jump into Magellan now. But if you're already a shareholder, you might give Lange a chance. As for Capital Appreciation investors, you should know that new manager Fergus Shiel's growth-oriented style differs sharply from Lange's contrarian approach. We'll be replacing the fund in the MONEY 50 next month, and you may want to look elsewhere too. But if you hold the fund in a taxable account, consider the possible tax bill before selling. --PENELOPE WANG

SHAKE-UPS, PART II Time to Abandon the Clipper Fund?

Also out: The team at the Clipper Fund. James Gipson, Michael Sandler and Bruce Veaco cultivated an iconoclastic style, typically holding fewer than 30 battered blue chips and, at times, big cash stakes. Clipper's long-term returns are great, although lately the fund has lagged. Looking for an alternative? Vanguard Windsor II (VWNFX), a cheaper MONEY 50 fund, is co-managed by the value investors expected to run Clipper. --JANET PASKIN