Linamar Corp (LNR.TO)

Auto stocks tend to do well in the spring, basically March to May. This hit a low in February along with the broader market, and ran strongly up into March and then kind of faded. Technically the chart shows a bit of a head and shoulders pattern, and then it came back down to support at $50. There is trend line resistance hovering around $55. It is a descending triangle, a bearish set up. It would imply that the next move is lower. Clearly the trend is negative.

He operates such that if anything goes against the company by 20%, he tries to Sell unless there is a real big catalyst. Everyone was quite excited about the buildup of the auto sector. Now there is a lot of talk about “peak auto”, and this company has been caught by that. Long-term this is a great company and will continue to make great acquisitions and grow. If holding for 3-5 years, he doesn’t see any problem. You can probably accumulate more on weakness. On a shorter term time frame, you might want to wait until there is a ramp up in the technicals before going back in.

You are fighting the trend a little bit. It is the premium valuation in the group. People are worried that the auto cycle is burning out. China is slowing down. He finds the valuation attractive. He owns others. He thinks it is a good buy here.

This is a great well-run company. It had a difficult time, but that goes back to the issue of the big run up in the auto industry. There is a feeling that the auto manufacturing is not going to be able to duplicate what it did last year. This is not global, but is taking time to move into different parts of the world which will help them. Not expensive.

This has 2 divisions. Auto parts where they are getting big into transmissions and engine components, and Aerial Work Platform. There is a little concern on the latter division where there has been a slow down on construction and industrial growth. Valuation is low. Reporting shortly. If there is any hiccup, he would probably be adding to his position.

The auto sector is a sector that has really had a great run, leading up to October last year, and this was one of the leading stocks. There is a view that we may have seen a peak demand, and that the units could come off in the near term. He doesn’t share that view, but technically this stock is not behaving well. Auto in general is not behaving well. He would avoid the group. (See Top Picks.)

This has great growth prospects ahead of it. They’ll continue to make acquisitions and roll things up, and continue to get more and more parts of a car to manufacture. One of the issues is their earnings acceleration in the last while. This sits right in the middle of the pack for parts manufacturing, which is why the market hasn’t been supportive.

Has fallen in the last week, but doesn’t know why. In the automotive parts business, an area he has been out of for a while. Although auto companies are reporting great sales, dealers aren’t necessarily able to push those cars out to the general public. That might have something to do with the fall in the stock price.

Reasonable debt levels, low P/E and good cash flow. Magnificently well run. Loves this company and what they are doing.

He owns it personally. They have done extremely well as has the automotive cycle. They have been able to strategically diversify their geographic footprint. They are into more precision parts than some of their competitors. He is not sure how many years we are likely to see such a gangbuster auto cycle. It could go down 25% if the auto cycle finished.

A bear wants to make a new low within 26 weeks. Is it a corrective phase or is it rolling over. See if it makes a new low. It looks like AN-N has bottomed, but he would be careful.

Just reported 24% revenue growth last year, 36 percent earnings per share growth. 8.5 times this year’s earnings. He does not believe there will be a recession in the US, which speculations caused the stock to pull back in January. The daughter is the fresh blood over the founder, which he likes to see in management after it has started up.

Is it possible to Pair Trade Magna (MG-T) and Linamar (LNR-T), and how would you do it? Yes, you could absolutely do it. You have the market risk, industry specific risk and finally the company specific risk. You are certainly going to take out most of the market risk, and the industry specific risk is close enough, and then you are left with one or the other of the companies. It really comes down to understanding the difference between the company specific factors.

Low debt, good interest coverage and has a 7-8 times on a price to earnings basis going forward. Also, has good free cash flow which can be used to increase the dividend, buy back shares or make an acquisition. Dividend yield of 0.76%.

(Top Pick Feb 13/15, Down 29.71%) He sold out before it went down. The auto sales are down. He is skeptical of the growth in the auto sector.