Happy Thursday afternoon to everyone on The Street. 

And happy holidays, Street Team! As a reminder, this week, rather than our usual column, “Tomorrow’s Trade Idea, Today”, we’ll be spotlighting “Yesterday’s Top Trade Idea, Today”: a handful of our previous stories that marinated like your grandma's holiday ham — juicy and unforgettable.

Obligatory reminder: past performance is not indicative of future results. Let’s dive in.

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YESTERDAY’S TOP TRADE IDEA, TODAY

This story was originally published on 3/17/2024. Since then, Phinia (PHIN) has risen by around 30%, for a total YTD gain of 56%, more than double the S&P 500’s gain of just over 24%, as of Friday, December 20.

The Future Isn’t Here Yet

An Alternative to EVs

The EV industry has hit some rough patches lately, so Morgan Stanley (MS) is providing investors with an alternative stock within the automotive industry: Phinia (PHIN).

The company, a spinoff of BorgWarner (BWA) created in 2023, builds parts for gas-powered car engines.

Morgan Stanley analyst Adam Jonas initiated coverage with an overweight rating and a $50 price target. That’s around a 39% upside from Monday’s open.

Weighing Risk and Reward

According to Jonas, Phinia is the bank’s preferred US auto supplier stock when considering risk and reward. He pointed to the fact that he believes it can generate cash flows at around 4 times EBITDA. 

The stock has the second-highest adjusted EBITDA margins within its coverage and is not highly leveraged. 

Morgan Stanley expects the transition toward EVs to be slower than the overall market is accounting for, and stocks like Phinia could benefit.

Smart Spending

Jonas likes the fact that Phinia doesn’t burn through investor money as quickly as its competition does. Historically, it has spread out its spending on things like research and development over a longer period than its competition. 

Jonas believes that the stock’s price will benefit from the company’s spending discipline.

Many consider EV stocks the future. But Morgan Stanley thinks it might be a while before the future arrives, and Phinia could be a good play for investors in the meantime.

Original Poll Results

Are you bullish or bearish on Phinia (PHIN) over the next 12 months?

🟩🟩🟩🟩🟩🟩 🐂 Bullish

🟨🟨⬜️⬜️⬜️⬜️ 🐻 Bearish

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