Opinions
David Burrows
Magna Int'l. (A)
MG-T
BUY
Jul 18, 2017
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.
If you like value, this is your company. Auto and auto parts has recently, in the last 3-4 weeks, made a nice turn. We are starting to get away from all the discussion about peak auto. This company is significantly cheaper than any other large parts producer or subassembly company. They have a great growth engine within the business, being the largest and complete auto assembling outsourced. There was about $2 billion in sales in 2016, which could be $7 billion by 2019. They are just taking over producing half of all the 5 series BMWs globally. Trading at 8X earnings, which is relatively cheap compared to its competitors.