Magna Int'l. (A) (MG.TO)

He is fairly negative on the auto parts sector. It has had a good run here. There are two primary uncertainties. Where are we in the auto cycle – at peak levels? – He thinks auto sales will moderate slightly. Then there is the impact of the electric car, which do not need as many parts. Then there is NAFTA which is unpredictable. Until there is more clarity regarding NAFTA, there is risk in this sector.

Sell?He doesn’t like the automobile manufacturing stocks, but does like the suppliers. Companies like this, once they become a supplier to a company for a certain part, tend to keep that business for a long time. This company has terrific numbers with high free cash flow yield, and you are going to get a boost in the short run, because there were a lot of cars destroyed because of the 2 hurricanes and the fires in California. These are all insured events, so for the next couple of quarters you are going to have some really good numbers. A well run company.

These types of companies have taken off over the last 6 months or so. Prefers Martinrea (MRE-T), because it was a bit of a turnaround story with better share price potential. He would be comfortable owning Magna, but would prefer it a little cheaper.

(A Top Pick Dec 7/16, Up 15%) Canada’s largest auto parts company. It traditionally trades at a discount to the market. It is an extremely profitable and rapidly growing company. The recent surge is caused by industry specific forces and news releases. Hurricanes in the US have affected half a million cars which will create increased demand for parts.

Thinks the company is great, and would say that it is undervalued. The fundamentals are improving.

Cheap. Bought his holdings when it was closer to 7X forward earnings, but it is now closer to 8.5 X. A very cyclical industry. Be prepared to own it during an expansionary period, and Sell before an economic downturn happens. There are some questions as to what will happen with changes to NAFTA, but so far it has held up well. Just announced they had joined a conglomerate with BMW and Intel to develop a fully autonomous driving system by 2021. Because they have such a wide portfolio of products and services, automakers are going to consolidate purchases and go with a name like this, rather than the 2^nd or 3^rd largest type of company. Not sure he would buy at this valuation, but maybe let it calm down a little. 2% dividend yield.

Has been doing well on the back of September auto sales. She wouldn’t annualize that, as it was part of the positive on the hurricanes. Auto sales in the US have been running at about 17 million, but at about 18.5 million in September. The sector is always kind of cheap, and the valuation is always attractive. If she were going to any of these, this would be the one she would add. Meanwhile the trade overhang with NAFTA should be allowed to play out. It is on her watch list.

People are buying the auto stocks and auto parts makers, because they are statistically very cheap. Even on a P/B basis, they are very good. However, in the back of everybody’s mind, there is still the fear that this auto cycle hasn’t played out, and we are playing off the top. It’s too early for a major, major commitment to this.

Likes this for its international platform, and its exposure to basically every major car brand in Europe and North America. They are very well positioned for both electronic vehicles and autonomous vehicles. The stock has always traded at a very low PE multiple, generally under 7X earnings because of the cyclicality.

If you play this right, this is a gift that keeps on giving. Their Q2 was good, and they raised their 2017 sales and free cash flow. He expects them to do an active buyback. Trades at a very compelling valuation, relevant to its peers. He is modelling 12% EPS. You want to buy this stock on NAFTA concerns and peak auto concerns. A good one to be owning.

(A Top Pick Dec 5/16. Up 21%.) The #2 auto parts Company globally, and a great global success story. They will continue to do well going forward. Thinks it is going to do better in the next year. A table pounding Buy. Trading at less than 10X forward earnings.

In their last quarterly conference call, they talked about their opportunities. They are doing $2000 on Internal Combustion Engine (ICE) cars. On an electric vehicle, they think they have $2500 worth of opportunity. On a hybrid vehicle, which most vehicles will be, they think they’ve got $3000 worth of opportunity. This is an outstanding opportunity.

Has been looking at this recently. On a valuation basis, it looks quite reasonable. What is affecting this is not so much political, but the changing dynamics within the car industry. Between autonomous vehicles possibly coming in, car sharing programs, Uber programs, and the dynamics of how people are going to own automobiles is changing. Nonetheless, someone is still going to have to make the parts and build the components, and this company is well positioned to do that. They have significant manufacturing capabilities globally.

Has done an outstanding job. They used to just be parts of cars, but now it is whole sections of cars. A big issue is that they are not a technology company. One of the big themes globally is car sharing, ride sharing, etc. Millennial’s are not buying cars the way the previous generation did. All the car parts makers are not expensive on a PE basis. The economy is in pretty good shape. But these are not the kind of companies that should be trading anywhere close to a market multiple. They should be trading in the high single digit to low double-digit. He is not a huge fan of the auto sector in general.

He likes the look of this auto parts supplier. Not expensive, but they have a lot of exposure to large SUV trucks in North America. That is a market which can move around. Their ability to be in the right part of the car and allocating capital under the current management team has been really good. Has a lot of respect for what they are doing, but this is a cyclical, capital intensive business.