Linamar Corp (LNR.TO)

It was a top pick in the past. He likes it and it is held in his funds. They had a miss-step when they missed on results then did a transformational acquisition. We will have to see what this does for them.

Linamar (LNR-T) vs Magna (MG-T) vs Martinrea (MRE-T) Has a small position in Magna (MG-T) which is the largest of the three. At this point in the auto cycle in North America, would be very hesitant about adding more. Thinks the bump up in number of vehicles in North America is plateauing. Very cyclical. You can see earnings and cash flow really degrade quickly rapidly. It’s one he would be careful and look for opportunities to sell on strong.

(A Top Pick Jan 6/17, Up 25.85%) Auto parts company. He likes this space and he likes this company. Had a good run but would probably take some money off the table at this point. He sees some weakness in their business. Thinks there are other good companies you could take some money off the table and put some in Martinrea (MRE-T) that still looks good or Magna (MG-T) that looks fantastic. Nothing wrong with this company but there might be better options. They have recently diversified from the automotive with their acquisition of MacDon Group that makes them more exposed to agricultural market.

They are winning a lot of business from OEMs as they outsource part of the design of engine blocks. They have another industrial division, Skyjack. Last year they had a contract that was cancelled. He likes them. They are really well managed. It might too early to call an end to car purchases. He likes this one and thinks it is a good buy right here.

(Market Call Minute.) Great, long term hold. Had a bit of a slip in the last quarter. He would be comfortable buying it here.

Missed their earnings, so the market took it down significantly. It could have been oversold on the short term. Typically, with these types of scenarios, he usually gives it 3 days, and then looks at it. If he didn't own this and wanted to add, he would probably do it in thirds. One 3rd in a couple of days, another 3rd in probably a couple of weeks, and a final 3rd in about 2 months.

He sees a ceiling of $100. It is currently at $70.26. His model price is $132.82, a 70% potential upside, but this is a cyclical. The stock dropped so much because everyone thought we were at peak auto, but this company’s worked through that and has gone higher. He sees better potential elsewhere.

Had recommended selling this about 18 months ago, because it looked like the auto cycle was peaking out. A wonderful company, but the major problem is that North American car sales have rolled over. You don’t want to be in this at the wrong cycle, which is where we now are.

Auto parts have climbed a wall of worry. Everybody was waiting for the auto cycle to end, to roll over from 17.5 million and go down to 16 million, which it appears to be doing. However, these stocks haven’t done anything, they just continue to make money. Generates lots and lots of cash. The multiple has gone from a very low level to a still cheap basis, because of fears. You want to buy a stock when everybody is afraid. As long as they keep spinning cash, it’s a wonderful business to own. He wouldn’t be adding to new clients accounts today.

Historically this has done very well in the springtime from February to May of each year, but recently, the stock has done better than that. All auto stocks have been moving very, very strongly higher during the last few weeks, but is not related to seasonality. Technically, this is currently in an upward trend and just broke to new highs. Short-term momentum indicators are doing well also. Stick with it for now.

Ten year investment? This is tough. They are great at execution and built a great business. He likes the auto group but there is improvement happening in various parts of the world. If he had a choice, he would buy MG-T (which he owns) over LNR-T, which is a hold. There are no transmissions in an electric vehicle.

He owns this, but is watching it very carefully to make sure the fundamentals and technicals continue to be strong. With the US 17 million annualized seasonally adjusted sales in autos, he thinks we could be getting close to a peak. The company has been very good at growing its business in good times and bad. This is one you want to watch closely.

What is not to like about this? It has a low P/E ratio. It has huge upside potential based on its current earnings forecasts, and trades only at about 1.5X BV. Why is it trading down here with all that value? It has huge FMV if you look at the current earnings. However, investors remember what happened in 2008-2009, when the auto industry crashed, and went down big time. Statistics on automobile lending are frightening. If interest rates ever start to go up, it is really going to put a spanner into the works for autos. His guess is that we are at the peak. When it gets there, we typically get a cyclical correction.

There is a move toward more aluminum in cars and multiple gear transmissions. It runs the engine in the sweet spot and gives you better fuel economy. Earnings estimates have been increased a little bit. They are expected to grow modestly next year. Free cash flow is 11.5%, which is significant.

(Top Pick Sep 2/16, Up 29.62%) He still likes it. He likes all the auto parts. It has strong price momentum and great valuation. 21% return on equity. 8 times PE. No net debt. Prices are discounting NAFTA news.