Martinrea

MRE-T

(A Top Pick Oct 6/17, Down 2%) He sold it back in July. There were great concerns regarding NAFTA.

Stick with it. They benefit from the NAFTA deal this week. Cheap. The best player in aluminum use in lightweight cars. Margins rising. Trading at 7x forward earnings. They're doing a good job. Their price is the best of the group.

All three of the auto parts makers--Martinrea, Linamar (LNR-T) and Magna (MG-T) are at significant risk if the US imposes its auto tariff. Setting aside the risk, MRE ranks better in his database than the other two. He sold MRE and LNR in order to lock in his profits as the price declined. He may soon sell Magna. He will not consider buying them until their prices start to improve.

Of the three Canadian auto parts makers, MRE is #3. After some struggle, MRE has been running well the past five years. It lacks the leading edge technology of its peers. All three are being effected by politics (Trump's tariff threats). He owns Linamar instead. MRE is cheap now, but these companies are fighting current headlines. That said, he likes the stock. It has good fundamentals.

(A Top Pick March 30, 2017. Up 32%). Trade talks have hurt the auto parts companies. However, Martinrea has as much production in the US and Mexico as Canada. This is one of the cheapest stocks in Canada. The trade dispute fears are baked into the price.

Has a low multiple, 6.7x, compared to the market. E-cars and NAFTA are two worries, but MRE has 41% of its production facilities are in the U.S. and sells 35-40% of its production to America. MRE has little NAFTA exposure. (Analysts' price target: $20.50)

It was lagging for a while, then picked up over $16. It's done really well. He sold his shares too early. But with NAFTA worries, he'd trim holdings now.

He loves this stock. It moved up a while ago and keeps firing on all cylinders. He read a research report recently that indicated an upside of $27--assuming the demand for cars stays strong.

Exceptional world class business. He finds auto parts challenging. However they are well run and are a good performing stock.

(A Top Pick Feb 13’17, Up 71.07%) It has always been a big winner. After the US election it was down. This one worked okay. He still believes in it.

(A Top Pick Nov 23/17. Up 3%.) This is still very strong. It is going a little bit sideways. He still likes it. It is in a holding pattern going sideways after its big run up, and is in a "trend continuation" pattern.

This has done phenomenally well. In the auto parts space, there is the big story of peak auto, with North American auto production going down. In Q4 production was down 6%. In this company's case, they have a nice ability of being able to grow because of cost cutting. They’ve really been executing on their business plan, and made a number of investments that are starting to pay off. She thinks the shares will go higher.

It has taken off pretty significantly in the last number of months. Looking at the 10 year picture, it has broken out here. It would be bad news if it dropped back into the range it broke out of. It has to stay above $14 and then there will be room to the upside. This could waver a bit based on what happens with NAFTA.

This has risen 30% since he talked about it Nov 15/17, but thinks it is still attractive. On March 1, they are expected to report a 31% increase in the year-over-year earnings. Trades at 5.4 enterprise value to EBITDA on a trailing basis against 15% EBITDA growth. Dividend yield of 0.8%. (Analysts' price target is $17.)

Chart shows there has been a bit of a downtrend over the years, but starting in March of this year, it had a very, very healthy breakout. It is currently at the highest point it has reached in 5 years, which means it will probably go even higher. If he had to pick an exit point, it would probably $20 or $21, but it is really too early to say. If you own, keep riding the uptrend, and use a 10% Trailing Stop.

Linamar (LNR-T) vs Magna (MG-T) vs Martinrea (MRE-T) Has a small position in Magna (MG-T) which is the largest of the three. At this point in the auto cycle in North America, would be very hesitant about adding more. Thinks the bump up in number of vehicles in North America is plateauing. Very cyclical. You can see earnings and cash flow really degrade quickly rapidly. It’s one he would be careful and look for opportunities to sell on strong.

Because of the NAFTA overhang, this has had a very low valuation. However, it is a very good company. Has a very strong position in “light waiting”, the auto sector manufacturers that try to make cars lighter and lighter and be more energy efficient, but still strong. Margin improvement has been very good. In spite of the strong rise in the stock price, it is still cheap at 7X Forward Earnings. Dividend yield of 0.8%. (Analysts’ price target is $17.00.)

(A Top Pick Nov 16/16. Up 88%.) If you have a cheap stock, just be patient with it. In this case, this was just a cheap stock trading at about 6 or 7 times earnings, 3 times operating cash flow.

They use Memex as real-time manufacturing software to improve productivity. Shares have gone up and there is more to come. Dividend yield of 1%. (Analysts’ price target is $15.50.)

They are doing a great job. They ended up having earnings up 27% last report. They are the best earnings to date. The stock is cheap and attractive. (Analysts’ target: $15.50).

It has done well. Auto parts. It is probably still good value here. They are gaining market share. His concern is the cycle nearing the end. He is concerned we are getting close to the end of the cycle. The business is being well managed.

The valuation is better than others. He was out for a number of years while the auto industry went through some changes. They are a leader in lightweighting cars, in making cars more fuel efficient. (Analysts’ target: $14.00).

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.

Canadian auto parts supplier. This has had its struggles over the last decade or so and they’ve gone through a difficult restructuring period. They are impacted by the global level of vehicle demand, particularly in North America. The OEM inventory levels being carried now is higher, which means it will push back on the suppliers, which is an issue. The valuation is reasonable.

This one is cheap and has a little more operational leverage than the other two in the group. It has a reasonable return on equity. It is cheap on a price to earnings ratio. It is a reasonably cheap company with some operating leverage. (Analysts’ target: $13.00).

In general, the US consumer is in pretty good shape. There has been a lot of concern in the last year that we are looking at possible peak auto for the cycle. It doesn’t look like that is the case, but auto parts companies and auto makers had a difficult time. The group that people were focused on within that sector were the auto parts retailers. In the last 2-3 months, the auto parts companies and some of the OEMs have started to come on. However, we do face a risk of some kind of border adjustment tax, and that could be risky for Canadian producers. He would prefer something like Delphi Automotive (DLPH-N).

He likes the auto parts manufacturers. This is probably the one with the most upside. It is kind of small and hasn’t done great except for a pop in the last month. They had some issues about management ability, etc., but overall it consistently earned an 8% ROC. If they just keep doing that, he shows significant upside, into the mid-teens.

CLS-T vs. MRE-T. It seems CLS-T has business picking up, but MRE-T is stuck in some kind of a glut that they can’t break out of. He refers CLS-T.

The auto space is battling the views that last year was a peak year for auto sales. A lot of people are thinking we are going to have a slowdown at some point. His view is that the consumer is improving globally. When he looks at a sector, he tends to look at securities that are acting the best. Picking a Canadian name, he would probably pick Linamar (LNR-T) or Magna (MG-T). However, the group is slowly improving. In a healthy market, the market should broaden, more and more stocks should participate, and this company looks like it has made the turn here. You are probably okay.

There are worries about the auto sector, and this has been under additional pressure, but he likes the valuation. When you get a stock trading at 5 or 6 times forward earnings, and 3X operating cash flow, you are already assuming the worst. They have a lot of downside protection. He likes the operations. They probably have the best exposure to aluminum in the automobile, which is increasing. European operations are doing well. Capacity is increasing and they are getting higher margins from that. Dividend yield of 1.38%. (Analysts’ price target is $11.68.)

He doesn’t know the financials, BV or the debt. Right now, with all the NAFTA agreements possibly being torn up, this company could be impacted. Any time companies are strongly impacted by changes, you have to think about what that is going to cost them. In this case, it may be negatively impacted. Things are way more in flux than before.

The chart shows a definite trend of lower highs and lower lows. This is now in a downtrend, and he would not buy it.

Doesn’t like the general dynamics of this industry, because they tend to be very concentrated and very dependent upon 1 or 2 customers. He has avoided this one like the plague.

He still likes this. It has been frustrating, particularly this year. People really seem to have priced the next auto downturn into the stock. Currently trading at 6X this year’s earnings and 5X next year’s. They are one of the best positioned for the increasing use of aluminum. Very strong management. Feels this is exceptionally cheap.

An auto parts manufacturer. All these manufacturers are trading at pretty low multiples. Typically, it is a lower type multiple industry. An overhang on the group right now is that auto production has likely peaked at 18 million units. There are increasing incentives in a lot of the pickup truck space. Europe has been very slow to turn. A well run company, and you could probably hold it here longer-term. Potentially, the election could be a negative for the group.

This has a 1.4% dividend yield. The stock is getting a little better. The auto sector is improving. He would prefer something like General Motors (GM-N) which gives a 4% yield, with a dividend that will grow 20% a year for the next 3-4 years.

Magna (MG-T), Linamar (LNR-T) or Martinrea (MRE-T)? His preference has always been for Magna or Linamar, and as of late it has been for Linamar. This is certainly cheap here, but their plant is older and doesn’t quite have the oomph behind it that the other 2 do.

They continue to deliver on earnings. Trading at 5X earnings. When you see that, it tells you that nobody believes there is any growth in the industry. They are paying down debt. Has great exposure to the growth of aluminum in the car. They’ve spent money on new platforms in the last couple of years, and are starting to reap the benefits. Probably not a lot of downside. The additional worry for them is the Trump election. They have plants in Mexico and do a lot of business with Ford (F-N). (Analysts’ price target is $11.11.)

In the last week, most auto parts companies have reported, and this one had an OK quarter. These stocks react very quickly to a changing business mix and sales, because they are all exposed to the different manufacturers in different weights and different parts and different margins. When we are seeing auto sales at the 17-18 million units a year, are we at peak auto? He would be cautious on this.

MG-T is his goto name, but he likes the auto parts cycle, although you have to be selective.

(Top Pick Oct 9/15, Down 25.38%) They beat their estimates. The growth has started to come back after a couple of years. They bought great aluminum factories and that metal is becoming popular in autos. The next recession in autos is already priced into this stock.

He follows the industry and owns LNR-T because it is better managed and initiates new programs for the auto industry. It has higher earnings growth. He prefers LNR-T.

They are expanding in Mexico and China. They have a new management team that is doing all the right things. It is trading at 5 times this year’s earnings. It is by far the least extensive compared to LNR-T and MG-T. It is still a tiny company that is making a turnaround.

Move to Linamar (LNR-T) or Magna (MG-T)? A great question, because these 2 are trading at rock bottom multiples. This is a reflection of the North American auto market being at a deflection point. It has more than fully recovered since the recession, and now we are starting to see some potential declines in US auto sales. The market is reassessing their growth potential for these stocks. Thinks that these will remain quite volatile in the near term. He would avoid the sector at this point.

What he likes is that the auto sector is pricing in the next recession. People are assuming the auto industry is going into a big downturn. This is trading at a ridiculously low valuation at 3X operating cash flow and 7X forward earnings. They are hitting their numbers and the earnings are growing. This is the best aluminum play out there in terms of the lighter vehicle move. Good European exposure. Recently added a lot of new programs and plant facilities and are now seeing the benefits of that. Dividend yield of 1.35%.

(Market Call Minute.) The sector is not going to roll over, but Magna (MG-T) is a better company. (See Top Picks.)

He sold a month ago. Sentiment got bad regarding the peak of auto sales and Tesla as a competitor. He would hold on to it. It is slow growth. If they bring down costs then there is margin expansion. He plans to revisit it in a couple of months.

Very good management. Strong numbers. They’ve been growing. Have put some new platforms in place in the US. Did a hostile acquisition. Very strong European growth. They are more levered to the use of aluminum parts in automobiles than any other manufacturer, which will be a growing area in autos. Trading at about 7X earnings and 3X operating cash flow. Dividend yield of 1.37%.

(Market Call Minute) He does not like the original products manufacturers. He prefers the secondary market.

Has strong season tendencies when investors are buying cars. End of Jan until early May of each year is the best period to own. Recently it broke a support level and established a downward trend. Look for better opportunities elsewhere.