With Stricter Vehicle Standards, Sensata Well-Positioned

Timothy Feeney: Sensata is a leader in the manufacture and sale of automotive-related sensors, with about a $7 billion market cap and 13% market share within its space.

We think the company is well-positioned to benefit from increased automotive sensor content as stricter emissions, vehicle safety, and fuel efficiency standards are forcing automakers to use more sensors. In the near term, we believe Sensata's top-line growth will be driven by increased automotive sensor content. As vehicles get safer, cleaner, and more efficient, they require more sensors.

We also think Sensata benefits from a narrow economic moat due to switching costs around its products. Specifically, if a customer were to try and switch sensor suppliers, one would face considerable effort, time, and financial costs to re-design and re-test products. Customers also tend to work with suppliers that have a long track record of quality due to the importance they place on reliability.

The stock is trading around $41 per share and has a fair value estimate of $49, so we think the stock is trading at a nice discount. Overall, we really like the business as well as the valuation.