Magna: A Green Play in Auto Parts

09/25/2020 5:00 am EST

Focus: INDUSTRIALS

Glenn Rogers

Contributing Editor, Internet Wealth Builder and The Income Investor

Valuations look extremely stretched, particularly in Nasdaq. Combined with coronavirus, the political uncertainty, and questions about the health of the economy, it is hard to get overly enthusiastic about investing right now, cautions Glenn Rogers, contributing editor to Internet Wealth Builder.

Unfortunately, with interest rates near zero, we are in a position where cash yields almost nothing. That said, as a general statement, having a higher level of cash than normal makes a lot of sense right now. But only in terms of having money in reserve to take advantage of a market pullback.

As for stocks, we should look for large companies with solid balance sheets, preferably paying a dividend. These criteria now make more sense than ever. One stock that caught my eye that meets all the criteria is Magna International (MGA).

The company operates in 27 countries and has over 165,000 employees. It does about $40 billion in annual sales, generated out of 346 manufacturing and assembly facilities around the world. Magna is ranked in the top three automotive suppliers globally.

The company makes everything from seating systems to power and vision systems. It manufactures complete body exteriors and 4-wheel drive systems. In fact, it is capable of, and does, manufacture complete vehicles for third party companies.

Magna is working with automotive startups in the electric car space; this creates an asset-light business and saves the enormous expense of building car plants for brand new automotive ventures that have not yet proven themselves.

But it's not just startups that fit this mode. Magna has been making cars for Mercedes since 1979 and its subsidiary, Steyr, has manufactured 3.7 million vehicles, including the BMW 5 Series and the all-electric Jaguar I, along with the Toyota supra.

They have a manufacturing joint venture in China and it's already begun manufacturing a vehicle for a start up there and has a memorandum of understanding with Fisker to make its new SUV.

This has been a challenging year; first half results were terrible compared to the previous year. However, the business has begun to recover, and the stock continues to pay a healthy dividend. Plus, Magna repurchased 4.8 million shares in the first quarter of this year. Buy with a target of $60.

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