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Best International Stock: Autoliv

Jim Gillies
February 4, 2008

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Motor vehicle collisions and fatalities are a sad fact of life. The World Health Organization pegs the annual global casualty count at a million people, a number expected to grow with increasing automobile use in the developing world. Working to thwart this terrible toll is Autoliv (NYSE: ALV  ) , an industry leader in the markets for automotive airbags, seatbelts, and related safety equipment.

With a global market share exceeding 30%, Autoliv lays claim to spearheading virtually all major technological breakthroughs in the occupant-restraint industry over the past two decades. Its products save more than 20,000 lives annually, it is estimated, and prevent 10 times as many severe injuries. 

All that makes for a good story, but what makes Autoliv a superior international stock?

Global safety
Simply put, the company is everywhere. Based in Sweden, the company has 80 subsidiaries in 28 countries, and 20 crash-testing tracks in 12 countries. It deals with all major vehicle manufacturers, including Japanese giant Toyota (NYSE: TM  ) , Korea's Kia Motors, France's PSA Peugeot Citroen, and America's Ford Motor Co. (NYSE: F  ) .

In addition to its international client list, Autoliv is in the middle of a multiyear strategy to wring costs from its operations by purchasing supplies and components in low-cost countries such as Mexico, China, and Poland. In 2003, just 9% of components were sourced from low-cost countries; that number is expected to be 50% by the end of 2009. Labor is also being shifted to low-cost locales, with 47% of personnel in such areas at the end of 2006.

Containing costs is one thing, but Autoliv is also primed by a trio of growth drivers. First, the worldwide market is growing nicely, although it may not appear that way if your vantage point is the U.S. or Japan. But Eastern Europe and non-Japan Asia are powering worldwide growth of 9% annually. Second, Autoliv continues to bolster market share, particularly with the companies that have been gaining share themselves (that would be Toyota and Honda (NYSE: HMC  ) ). Finally, the value of safety content per vehicle continues to rise, both in emerging markets (seatbelts and basic airbags), and in developed markets (side curtain airbags, knee airbags).

Unrestrained focus on shareholder value
Autoliv generates considerably more cash than it needs, and company management seems obsessed with returning value to shareholders. Since 2002, Autoliv has plowed seemingly every penny of free cash flow into ever larger dividends and stock repurchases.