Exco Technologies (XTC-T)

This had disappointing results. Had come to the Street about a year ago talking about their new high tech Japanese equipment. Their big business is making moulds for automobile engines. It’s a purchase that auto companies would only make once or twice in a cycle. They hadn’t delivered in the latest quarter and the stock pulled back.

He would call this a value investor’s dream. Across the board it is cheap, no matter what value metric you are using. It’s about a 3%-4% dividend. Has a good history of buying back shares and increasing the dividend. Hasn’t been doing too well lately, but feels there is potential in the next quarter or 2 with better earnings. A name you probably have to be patient with, but your downside risks are manageable.

(A Top Pick June 24/16. Up 76.11%.) A well-run company. Management has been great capital allocators. They are able to grow through both acquisitions and organically.

(Top Pick Feb 24/17, Up 1.75%) He is not too concerned about the auto sales in the US pulling back a bit. This is normalization. They continue doing a great job and can make accretive acquisitions. He remains a buyer at these levels. They pay a healthy dividend yield that could potentially increase going forward.

Auto parts with global facilities. Revenues of about $600 million. There is probably better risk/reward in Magna (MG-T) and Linamar (LNR-T). Magna is going to do a better job of growing content per vehicle, and manage what could be a decline in North American vehicle sales during the next couple of years, because they have more exposure to other parts of the world. However, there is nothing wrong with this company.

(A Top Pick May 24/16. Down 8.67%.) Exposed to the auto sector, and everybody is concerned about what is happening. He remains committed to the sector, and especially to this company. A tremendous organization and highly profitable. They are generating good return on equity. They undelivered relative to their competitors. Despite this, they are already producing 16% return on equity. Just initiated a normal course issue bid in February, which should provide downside protection for the stock and give management the optionality to buy back shares.

A well-run company and the ROE is high. They have been expanding margin profile. Normal course issue is going to support the stock price and they are going to see positive allocation of capital. Dividend yield of 2.84%. (Analysts’ price target is $14.08.)

(A Top Pick June 24/16. Down 0.24%.) Tooling for auto parts. This is a value play and you have to think a bit longer term for it. Very cheap. A strong, consistent ROE and a dividend grower. They are pretty adept at making acquisitions. Dividend yield of 2.3%.

There is no secret sauce to this one. Just a solid operator, going with value and a bit of growth. A cheap valuation, but within their peer space, they are one of the faster growing companies. Also, have really high insider ownership. This has organic growth, acquisition growth and dividend growth. The payout ratio is low and they have plenty of room to increase the dividend. Dividend yield of 2.3%.

An interesting one to invest in. In the auto parts business, die casts, etc. Has traded better than Magna (MG-T) and Linamar (LNR-T). There is a small knock against auto sales in the US right now, but he thinks they are going to flatten out. However, as soon as people get a sniff of auto sales slowing down, they hammer the stocks. This is a good entry point at 6X cash flow, not that expensive.

Specializes in providing different support things for the automobile sector, so are really capitalizing on this uptrend in autos. Well-managed with a top notch management team. They are having a CEO transition, which he is not too concerned about, as the past CEO will become chairman. The stock has been beaten down with the sector, which he feels is premature. Everybody is speculating that new car sales have reached their peak. Even if that is so, this company is trading at extremely attractive valuation multiples. They have quite a bit of revenue coming from outside of North America. Feels they will also have opportunities to deploy excess capital. Has about $30 million in excess capital. Dividend yield of 2.25%.

(A Top Pick Feb 4/15. Down 0.4%.) Auto parts manufacturer in cast-iron. The backdrop is not great as people are looking for a global growth slowdown, but their last quarter was really solid. They continue to increase the dividend at a nice rate. It is small enough so that they get good leverage to individual contract years. Very well-managed and management owns about 25% of the company. Still likes this a lot.

(A Top Pick Feb 4/15. Up 4.04%.) A little Magna (MG-T). This one has really outperformed the auto sector. He really got excited when they raised their dividend about 25% a year ago, and it really kick started the stock. They have good, long term contracts and they get a benefit from the US$. A very well-run company. Management owns about 25% of the company. 1.7% dividend yield.