Opinions
Greg Newman
Magna Int'l. (A)
MG-T
TOP PICK
Jul 31, 2014
Stock price when the opinion was issued
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It won't pull back much from here. Given tariffs, this space is uncertain, but eventually we will settle this tariff war. Auto manufacturing is so emeshed between both countries that it would take a very long time to rejig it. This or Linamar are fine, but Magna pays a higher PE, though trades at a higher price-to-book. Your horizon must be long to own this, like 3-4 years.
Very hesitant. Recent recovery has been sharp and quick, almost as though it's factoring in abolition of tariffs completely. We need more clarity on tariffs. Auto industry is highly cyclical and depends on health of the economy, and we're seeing signs of weakening.
If you own it, don't need the cash, and have a 5-10 year time horizon, you should be fine. But there could be further weakness from here.
Nobody wants to buy this at its high price, but it is cheaper than its peers. 6.2% times 2015 estimates versus the peers at around 6.5%. Given the quality of this name, their higher return on assets, buybacks, dividend growth and acquisition opportunities, they should trade higher at 6.75%. US price is about $110, and he sees it going to $150 US. Raised their guidance on sales and margins in Q1, and he sees upside for both North American and European margins. He estimates they can grow their dividend at 31% in 2015 as well as a 16.5% buyback.