Last Updated On: January 1, 2019
Share Price On This Date: $61.97
Global auto parts manufacturer.
Magna is one of the biggest bruisers in the Canadian market, with a market cap of $20 billion and operations spread across the globe. They have factories in China, Europe, the US, Mexico and Canada making a wide variety of auto parts for a wide cross section of automakers. The metrics look good with a trailing p:e of 7 and debt that is only 2 times earnings, but investors just aren't interested. Valuations are low across the industry. Like Linamar, Magna sees lots of potential in the evolving electric car space. With auto makers committed to launching dozens of new electric models over the next few years, Magna is sure to win a chunk of this new business as it did when it won the contract to build the new iPace for Jaguar. As well, they have been actively pouring money and resources into developing autonomous driving systems and if you can believe the string of news releases, have been making strong headway in this exciting new area.
They had a record year in 2017 to cap off an impressive 4 year run with returns on equity well into the 20% range and earnings continued to reach new heights in 2018. Profit margins have also been impressively high. Compared to their performance during the last business cycle, they are really firing on all cylinders.
While this is great news, it is also merely what we see in the rearview mirror. Looking out the front windshield, the road ahead does not look so clear. There have been reports of sliding auto sales in the news recently and investors are taking a very dim view of the whole auto industry. An investment in this company could require a deal of patience as we may have to whether a severe downturn before things perk up again, but at the current share price, I am willing to wait out the worst of the storm.