Star Trek fans may chuckle when they see the name "Borg" on Wall Street. The Borg in their world have a single goal -- the consumption of technology (instead of wealth, or political power).
The Borg on Wall Street, Motley Fool Stock Advisor recommendation BorgWarner
For its first quarter of 2005, the company reported that net sales were up 20% over the same period last year, or 5% if you exclude the purchase of automotive supplier Beru. Operating income increased 7.7%.
Operating margins decreased 0.9% to 7.7%, but that dip can be easily explained by the Borg-like 39.8% increase in research and development costs. The underlying cause for the increased R&D becomes evident when we take a closer look at the Beru purchase, which resulted in an immediate write-off of in-process R&D. But for comparison, if R&D had remained unchanged, operating margins would have improved over last year's.
To see what a rose BorgWarner is, look at the competition. First, there are the GM and Ford spinoffs, Visteon
The future is very bright for BorgWarner. Analysts expect earnings to jump 13.7% this year and 14.8% next year. That's double-digit growth for a company that also had an excellent 15.7% return on equity in 2004. The forward price-to-earnings multiple is a downright cheap nine times 2006 earnings.
In this observer's view, hanging around in the rose garden with some companies sporting really thorny issues is hurting the stock price of BorgWarner -- the prize rose of the bunch.