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

This is a valuation call. Trading at 7X earnings. We had peak auto production last year. A great company, a great industry, the largest in North America, big European presence, and people are saying it is over and no one is going to buy a car again. They forget that Tesla (TSLA-Q) and Apple (AAPL-Q) have already talked to this company about production. Magna has the balance sheet to make pretty much any acquisition they want. Even if the sector did roll over, this company would just pick away at certain companies, and build up their market share for the next cycle. Very well-run. Dividend yield of 2.64%.

(Market Call Minute) He prefers the auto parts companies to the OEMs. We saw a hiccup from Ford. They are well diversified.

The industry is slowing, and this company is aware of that. There was concern with Ford (F-N) today, but the PEs in the whole space are at a 20-year low. For this to make sense, he has to see EPS contract by 30%-40%, so they are cheap. 79% sales growth and 18% EPS over the next couple of years, and a very cheap multiple with a great balance sheet for accretive M&A, for buybacks or possible dividend growth. They are only about 1% exposed to the UK, but 27% Europe. Dividend yield of 2.63%.

This has been basing, and now he thinks we get to the point where it is starting to accelerate. It doesn’t rank super well in his process, which he thinks is a result of valuation. At this point in time, he hasn’t seen an earnings trough, but you are probably getting close to where you are going to see an acceleration in their earnings.

The chart shows a head and shoulder formation in 2014-2015. It is very common for prices to recover back to a neckline, and then it should continue to go lower again. The US auto industry has had its good run, and is now kind of a leveling off.

Thinks people are pricing in the next recession in the auto industry right now. The average age of the auto is still too high in the US. Even if the cycle rolls over a little it is not going to roll over too much. European exposure has always benefited this company, and it is a growing market. They are also positioning themselves around the next breed of electric vehicles.

Magna (MG-T) or Linamar (LNR-T)? Both names are very attractive right now. Just recently purchased this one. Both are trading at all-time compressed Price earnings multiples. Both are under a little bit of pressure because of their exposure to Europe. 35% of this company sales come from the euro region. He personally prefers this one.

Relatively low oil prices and relatively low interest rates are great for the US consumer, and consumer confidence looks strong. There is a question mark around auto sales that the market is posing right now. All the auto parts companies have been challenged. He would prefer that the market shows him some belief before he put money to work.

Brexit is going to affect growth in sales in the UK and Europe. They have exposure to Volkswagen as well. It is probably a decent entry point here, however. It could be two or three years before they come out of this cycle.

Outlook on auto part makers? The P/E ratio on these names are single digit right now, and you are getting a good dividend to wait. He would be a buyer, and Magna (MG-T) would be a top pick in that space, as they are a leader. This sold off recently and the valuation looks good. Thinks auto demand has been discounted too much.

(Market Call Minute.) Go Long this and Short Linamar (LNR-T).

It broke the 200 day moving average and made a lower low, so he sold it. It is currently in a down trend. They had some production issues, took down some acquisitions they did not have time to integrate and were affected by currency issues.

(Market Call Minute.) Like all auto companies, this is cheap and has come down with concerns that the auto cycle has peaked. He suspects that the auto cycle may have peaked, but is going to peak and go sideways at a high level for a few years. Thinks the whole group is quite attractive.

(Market Call Minute.) Linamar (LNR-T) or Magna (MG-T)? Both are great companies and this is a sector that he likes very much. He prefers this one because of its world spanning line of factories and very solid management worldwide.

An interesting story. The car business is very cyclical and this company is close to its lows. The dilemma is that car sales have been very, very strong for an extended period of time. There have been a lot of car loans made to fuel that huge cycle we had. He is a little concerned on financing that has been done. Also, the strong US$ is a bit concerning. Also, the nature the way cars are being manufactured, there will be fewer moving parts, and fewer things for this company to actually do. Thinks the car cycle is quite extended.