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

(A Top Pick August 29/16. Up 18.2%.) Auto sales numbers in North America have been cooling off, coming down from a high of about 18.2 million units last summer to about 16.6 million units. This one is a global champion and well diversified with about 40% of sales coming out of the US, a big chunk coming out of Europe and a small but increasing proportion of sales coming out of Asia and growing very, very quickly. They target 8% EBITDA margins and have been coming in above that. He continues to be a buyer.

This is too cheap to Short, but he certainly wouldn’t want to be Long in the auto space right now. It seems the auto cycle is rolling over, and auto parts manufacturers are typically a torquey way to play the auto cycle. It still generates a reasonable amount of cash. His worry is that a lot of the automotive inventory stories eventually come home to roost for auto manufacturers, which then trickles down to the auto parts manufacturers.

This is cheap, and as part of a portfolio, it still makes sense. Trading at around 8X. The valuation is ultra low. Dividend yield of 2.3%.

Auto sales have gone up, up, up and have peaked at around 17.5-18 million vehicles. This is cheap, because it is selling all the products to a world of 17.5 million vehicles. The question is, what is 2018, and more importantly 2019-2020 going to look like. This could then be followed by vehicles driven by robots. His view is that manufacturing will probably go below 17 million vehicles in 12-18 months.

When looking at the auto industry in North America, there are challenges. However, if you have a global perspective, there could be a very strong argument that auto sales are going to increase very meaningfully in places like China and continental Europe. This company has a global footprint, so would benefit from those increases. In North America, there are warning signs including an increase in delinquency in auto loans. A large number of vehicles coming off lease are going to hit the market and affect used vehicle pricing, and could make its way back into new vehicle pricing. A lot of these concerns are adequately reflected in the valuation, which is why he thinks this is a decent Hold.

There are concerns with border tax and NAFTA uncertainty. This in all likelihood should do very well. Has a very nice growth rate of over 11% over the next couple of years. Very cheap relative to its peers. The US guys trade at around 10X and this trades at around 7.8X. Great balance sheet. He likes when underappreciated names get tossed around like this. He is looking for upside in the next 12 months.

(A Top Pick Aug 3/16. Up 27%.) At that time, people were talking about peak autos, rollover, and higher interest rates, and that didn’t quite happen. It was a strong year for autos last year.

Trading at a very cheap valuation, under 8X PE. They have global operations. They are improving their European operations, so they are improving margins. Good balance sheet to EBITDA at about 1X. If one of the large tech companies ever want to manufacture their own smart car, they might look to a player like this.

Just came out with phenomenal earnings, which popped the stock. A very, very high level of earnings comes from outside of Canada.

Shares are very, very cheap, trading at less than 8X forward earnings. They are trying to get more content with higher margins into the car, rather than trying to build market share with more cars, and doing a pretty good job. The communications out of Washington in terms of taxing certain things and NAFTA are probably hurting companies like this. Also, we are getting into the later stages of the new car cycle. Decent dividend of about 2.5%.

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.

(A Top Pick Aug 29/16. Up 16%.) The stock faded a little on fears of the auto cycle plateauing. Investors may have forgotten that this is not just a North American auto parts Company, they have a great platform in Europe, as well as growing in Asia. They recently just reported a great quarter. He continues to like this.

One of the world’s great auto parts manufacturing companies, with sales of almost $40 billion. A real Canadian superstar. It is way undervalued trading at 7.5X earnings. Whether we end up driving electric cars or gas cars, this company is going to sell a lot of the parts. Strong management. Has diversification across so many different OEMs. Dividend yield of 2.4%. (Analysts’ price target is $53.79.)

(A Top Pick April 21/16. Up 16.76%.) This continues to grow, despite all the skeptics saying the auto cycle is coming to an end. Trading at 7X next year’s earnings and 3.9X EBITDA, which is unheard of for this size of company. 2.5% dividend, which increases every year.

The street liked the earnings that were reported. The chart shows a bottom in mid April. There is now a double bottom test. A really good name. You want to see this hold the $62 or break above that. If it does so, there is going to be a little bit of resistance right around $75.