Martinrea (MRE.TO)

There has always been a problem in that it doesn’t ever get up to that same bar as the others. When you buy a stock like this you have to roll with the punches. They are going to miss a couple of quarters and are not going to execute perfectly. He is not interested in this. Would prefer Linamar (LNR-T) or Magna (MG-T).

There were issues with management and the co-founders and once problems were settled the stock went higher. These things were reflected in the price. He recommends waiting before buying call options because it looks like it is starting to roll over a little bit. The indicators are getting a little bit soft. Wait for it to test, there is a divergence. No rush to buy, feels that it is heading down.

This has a pretty good set up over the next couple of years. Have a new CEO who has a pretty good eye for margins and execution. Management is buying stock on the open market, which is showing a lot of confidence. Margins are about 350 basis points lower than the competition. It is still trading at about 10X earnings. If you normalize those margins and put a better multiple on, such as 11 or 12 times, the stock could be up 30%-40% from here. Dividend yield of 0.90%.

Is this ripe for a takeover? He would not own a stock strictly based on the probability of being taken out. Large automakers do not want to see more consolidation in the industry. He looks at stocks in 3 ways. Good price momentum, good valuation, and reasonably low volatility. This scores well on most of those metrics. A little bit cheaper than some of their peers at 7X EBITDA. Reasonable balance sheet. They do need to start to generate more cash. (See Top Picks.)

Even though valuation has moved up a lot in the past year, it is cheaper than the rest of the group in cash flow and earnings. More importantly, they have stuck money into new programs and facilities over the past couple of years and thinks they are just turning round now to the harvesting of those operations. They have a lot of new programs coming into place. You are looking at 10%-15% earnings growth a year at least, over the next 3 years. They are the biggest player on aluminum parts in cars, which is one of the highest areas of growth. Higher European luxury growth. Also, the Cdn$ benefits them. Dividend yield of 0.89%.

He likes the business, but is more drawn by MG-T. They made a marvelous recovery. He would hold off for now.

Selling very close to the top of its range. Had a great run with the improvement in the auto industry. A few years ago they were having some management issues that seems to have been straightened out. Selling at around 13-14 times earnings with a yield of less than 1%. You have to count on the auto industry remaining fairly strong for some period of time to see any real capital appreciation.

Starting to do really well. Has gone from $9-$14 in the last 6 months. Had been down because of a lawsuit by former management, so it is at the cheapest valuation.

Lower PE compared to MG-T and they have margin expansion. MRE-T has had very flat margins and he thinks they will now expand from 6 to 9% so you get faster earnings growth.

Have recovered from their problems of a couple of years ago. Auto sales have been incredibly strong both in North America and globally. This is a fine enough company, but feels we have reached a peak in auto sales. You are starting to see this in the inventory numbers of the manufacturers. He would stay away from the whole sector.

(Market Call Minute.) This has come up the ranks in his process. He has his eye on it. It might break out to higher highs.

Thinks the bigger upside for this company will come from continuing improvement of their operations. They have been undervalued for a while to the group. Last quarter they seemed to be making some good progress.

Auto parts manufacturer which is well-liked on the street. The chart over the last 12 months shows that it has actually gone nowhere. The stock doesn’t seem to have a direction. A lot of volatility is showing from 2013. If you buy this and are a long-term investor, you are going to have to go through some volatility. The technical target is around $20.

(A Top Pick Feb 13/15. Up 11.16%.) This has a period of seasonal strength from January all the way through to May, and the average gain per year is about 20%. Auto parts tend to benefit in the spring.

The litigation is out of the way. The stock is now cheap. They are positioned very well. There is 15% earnings growth. They have big European sales and there is an increase in the use of aluminum in cars and MRE-T is best positioned for this demand.