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

The auto sector is down a little, and has been for a few months. The question is, is this the end of the cycle? This company is seeing a multiple compression. Consumer cyclical stocks have traded at very low multiples at the peak and very high multiples at the lows, so you don’t want to buy them when multiples are cheap, but actually when multiples are higher. Sentiment on this company is becoming increasingly negative. Thinks this will be coming under the gun for a little bit longer.

Doesn’t have a bullish outlook on the auto sector. He would guess we are probably at peak auto. Auto sales are really being driven by cheap money. A little more of a pullback, and this would actually make sense.

(Market Call Minute) They meet his criteria, as does LNR-T. It is probably a good entry point.

The rule of cyclicals is that you sell them when PEs are low and buy them when PEs are high. The PE on this is dirt low right now. Over the long-term you are going to be fine, but in the short run this is still dead money.

This has been underperforming for quite a while. At a minimum it has to test the February low of around $42. Wait for $42, and if it holds there, you could buy some, but if it doesn’t hold there you have another 10% below that at least.

Because they produce auto components, they are susceptible to movements in the auto cycle. We have come off several very strong years in auto sales, and people are concerned that we are starting to see a peak in auto production, and are going to go through a couple of years of having a pullback. If so, this company will be affected. The events in Europe have compounded this problem, because they have a tremendous amount of business in Europe. His would start legging into names like this.

One of his favourites, but doesn’t own it because of car sales in the US topping out at around 17 million. Europe is advancing a little. Wait for a further decline before buying.

(A Top Pick July 21/15. Down 29.68%.) This was a very cheap valuation at $70, and is even cheaper at $49. People at the beginning of the year got it in their head that we are at Peak Car, and that GM and Ford are not going to sell as many cars, and if interest rates go up, it is going to be bad for car leases. He continues to buy more and average down.

A screaming buy at these levels. Not because he expects mega-growth in the automobile industry, but when you look at the valuation, this is pricing in a doomsday scenario, to say the least. Trading at around 8X PE, and comfortably could be at around 11X or 12X, so doesn’t believe they need to grow their earnings considerably to see a multiple expansion that reflects the current market environment. Dividend yield of 2.58%.

(A Top Pick Sept 18/15. Down 22.75%.) One of the best at what they do, and the market is not recognizing them for it. Trading ultra cheap at 8X on a PE basis. Doing all the right things. They are honing in on the accretive type segments of their business. Sold off their interior business and bought a German transmission company, which specializes in dual-clutch transmission systems, and gives them access to new geographies in Europe and Asia.

Cheap and a good buy here. Auto parts companies are all facing the same issue, and are not seeing a slowdown in the industry. The market is pricing in a recession that is yet to occur. Valuation is 3 to 4 times operating cash flow and 8X earnings, and is still growing.

He used to own this, but went to Martinrea (MRE-T), which is smaller, giving higher growth and a cheaper valuation. Thinks this could go to $60 in a good market environment a year out. It probably at least breaks even by year end.

Magna (MG-T) or Linamar (LNR-T)? Doesn’t own either, but if she had to choose, she would lean towards this one. The stocks have not participated very much in this rally. This one’s North American operations are doing quite well. The real leverage is in Europe where the margins and the content per vehicle are lower.

Magna (MG-T) or Linamar (LNR-T)? There have been very strong auto sales in North America for the last several years, which has led to strong results for companies like these. There is a concern that there is some potential pressure on the overall auto cycle. This is one of the reasons these companies have been weaker. Between the 2, he would think that this is the purer play.

A very, very cheap stock. There is a lot of negative commentary on where we are in the automotive cycle. The car stock in the US is very old again. He likes the story.