AXL - GM October sales Bullish

Expanded my position in American Axle and Manufacturing (ticker: AXL) to 6% from 4% at $9.28. AXL is now my largest single stock position.

General Motors October U.S. sales exceeded the low expectations set by the street. October U.S. sales increased 13%, highlighted by a 27% increase in the Chevy Silverado and GMC Sierra hevy duty pickups. for the company Chevy increased 7%, driven in large part by truck sales. Expectations were for sales to drop 6.3% in the month.

AXL is the exclusive supplier of drive-line components to GM for its rear-wheel drive light trucks and SUVs manufactured in North America, supplying substantially all of GM’s rear axle and front four-wheel drive and allwheel drive (4WD/AWD) axle requirements for these vehicle platforms.

The low GM sales expectations likely weighed on AXL earlier in the week but the actual results should boost AXL as the trends in the quarter appear to remain quite healthy.

Wall Street is looking for a sequential drop in revenue ($570A million to $564E million) and EPS ($0.39A to $0.30E) in the December quarter. In 2011 the consensus is for revenue growth of 7% and EPS growth of 5%. The P/E based on consensus 2011 EPS of $1.35 is under 7x. Based on GM October sales trends, GM's plans to ramp-up advertising spending, and strong trends outside the U.S. for vehicle sales; I believe there is significant upside potential to revenue, EPS and the P/E should expand.