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Revving up with auto electronics

Jim Tierney, who manages the $2 billion Concentrated Growth strategy for ­AllianceBernstein, finds safety in small numbers: He holds a mere 20 or so stocks, often for five years or more. His philosophy emphasizes accelerating growth, an approach that has helped his fund return an average 8.7% per year, vs. 6.9% for the S&P 500, since he took over in 2008. A recent favorite: Sensata Technologies, which makes sensors that, say, regulate engines to save fuel and turn cars into sophisticated electronic machines. Tierney thinks the company can sustain 15% annual revenue growth for the next five years.

Sensor Sensation
Sensata’s growth “isn’t about how many cars there are,” Tierney says. “It is about how electronic the cars can be.” Both governments (hoping to reduce emissions and improve fuel economy) and customers (who like safer braking) are pushing for more technology that depends on sensors. The opportunity is huge: A sophisticated Mercedes E-Class turbo diesel has $200 of sensor equipment in it—but the average U.S.-built car has $25 worth of the technology. Whether or not auto sales rise, Tierney argues, those manufacturers will increasingly add sensors, driving sales for Sensata.

A Precise Road Map
Tierney admires the clear vision of Sensata CEO Martha Sullivan. She has vowed to double revenues between 2012 and 2017, he says, through organic growth and takeovers. (Revenues increased 13%, to $2.1 bil­lion, in the fiscal year ended June 30.) Recently the company announced the acquisition of tire-sensor maker Schrader International, which is benefiting from its own tailwinds: Tire-pressure sensors are now required in North America and South Korea, and will be mandated for new cars in Europe after November 2014. Tierney says Schrader was a “quality” acquisition.

Talking About China Growth
China’s market has by far the most potential for companies that supply carmakers with electronic technology, in Tierney’s view. Vehicle sales are burgeoning—20 million vehicles a year, 11% more than in Europe, the next-biggest market. Given that the average car has a paltry average of $10 worth of sensors, demand is likely to speed up. Moreover, Sensata has a strong foothold in the Middle Kingdom: The company’s clients (including Volkswagen and General Motors) account for seven of the top 10 most-sold
brands there.

It’s Priced Reasonably
Comparing Sensata’s valuation with those of its rivals is tricky, since most of them are buried within conglomerates. Sensata trades at 19 times forecast earnings over the next 12 months (adjusted for tax exemptions), lower than the 22 for a peer, Amphenol. Tierney thinks Sensata compares favorably with the S&P 500. Yes, that index has a lower price/earnings ratio (16), but its growth is expected to be half of Sensata’s over five years. “You get twice the growth while trading at only a three-point premium,” Tierney says, adding that he thinks the stock price could jump 25% to $62 over 12 months or so.

This story is from the September 22, 2014 issue of Fortune.