Linamar Corp (LNR.TO)

(A Top Pick March 2/17. Up 4.43%.) The period of seasonal strength for automobile parts is from mid-March to early June with an average gain of about 30.9% over the past 20 years. It has been positive 80% of the time. This is still a great story.

(A Top Pick July 13/16. Up 24%.) Last summer, the whole auto industry was hit hard when Morgan Stanley said we were going to stop driving gasoline driven cars. This is one of the best managed companies in Canada and has a huge backlog of business. They also own Sky Jack which is pushing into the global business of equipment for construction sites. Still relatively cheap with lots of upside left. Trades at less than 8X earnings.

A little bit of a less focused business than Magna (MG-T) in auto parts, but still a great name.

(Top Pick Aug 15/16, Up 11%) The strategy is that they are taking advantage of growing outsourcing. They are building more and more content each year.

Linamar (LNR-T), Magna (MG-T) or Martinrea (MRE-T)? He doesn’t find the overall environment for auto parts manufacturers very constructive. US auto sales are at their highest levels, running north of 17 million units. This is the 2^nd or 3^rd year that has been going on. There is the NAFTA free trade agreement in question. Also, auto loans are coming into real focus, which in his view, are not very positive. There is some debate as to how these companies can move from an internal combustion engine to an electric car. This is too dangerous a time to be going in right now.

Linamar (LNR-T) or Magna (MG-T)? Both are great names. The Magna name is more of a pure play in what he is trying to look for in the auto parts area.

One of the 3 or 4 biggest auto parts companies in Canada. They’ve done a good job. Have benefited from the auto cycle over the last couple of years. The gains have sort of tempered a little. He prefers Magna (MG-T), given its larger breadth and scale.

(A Top Pick Jan 6/17. Up 2%.) There was speculation about “peak auto” not that long ago and a lot of these companies took a hit. Doesn’t think this is anywhere near being fully valued, and feels it has good upside potential.

(A Top Pick March 14/16. Down 4.39%.) They just announced results yesterday, and had the 22^nd consecutive quarter of double digit operating earnings growth. A fabulously run company. The stock has been languishing, probably more on sentiment, on a concern that the auto cycle is peaking, interest rates are going to go up, a lot of leased vehicles coming off lease, etc. This is still a Hold.

Auto stocks in general, between about March all the way through to mid April, is really the peak period of seasonal strength for some of these auto stocks. Whether it is consumers buying cars or consumers fixing cars, this is the time. Between mid-March and early June, the stock gains an average of 30.93%, and has been positive in 80% of the past 20 years. It is breaking a trend of lower highs and lower lows and starting to form a head and shoulders bottom. Dividend yield of 0.66%. (Analysts’ price target is $66.)

A leading auto parts producer. The auto parts cycle has sort of hit a plateau in North America, production running around 18 million units. Maybe growing a little better in Europe. China and Asia has been the big growth story for a lot of the auto parts companies, but may be cooling off. (See Top Picks.)

This is considered as a medium risk company. An auto parts company, and has gotten beaten up just from peak auto speculation. Undervalued and a great opportunity. Dividend yield of 0.66%. (Analysts’ price target is $62.94.)

LNR-T vs. MG-T. He owns this because he found it cheap vs. the organic growth it was showing. It got cheap and attracted value investors. It has been executing well and done well with organic growth.

Magna (MG-T) or Linamar (LNR-T)? On this, he has an 86% upside for his model price. He doesn’t really like this space. We have sold a lot of cars in the past. However, if we get growth again, that would be one argument for them. He would choose Magna over this.

The auto parts space is pretty depressed. A lot of people are concerned about where we are. The auto industry is cyclical. MG-T gives you better diversification. A lot of these stocks are cheap, but be cautious.