01/08/2014 7:00 am EST


Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

The automobile industry is doing very well these days, and our top speculative idea for 2014 is an auto parts manufacturer that is among the companies that are benefitting, asserts Gordon Pape, Canada stock specialist and editor of Internet Wealth Builder.

Linamar Corp. (TSX:LNR), which we initially recommended in July of 2012 at $19.72, has more than doubled in the year and a half since, but I believe it still has more upside potential.

The company is not as well-known as competitor Magna International (MGA), but it is highly successful and employs 17,600 people in North America, Europe, and Asia. It has 40 manufacturing locations, five research and development centers, and 15 sales offices in 12 countries.

Linamar's financial reports have been showing steady improvement in the past few years. Third-quarter results, released on November 13, showed a 15.5% year-over-year increase in sales to $893.3 million.

Operating earnings were up 53.4% to $73.5 million, while net earnings rose to $52 million ($0.80 a share) from $33.7 million ($0.52 a share) last year.

This is a relatively small company, with a market cap of only $2.8 billion. The shares are reasonably priced with a trailing 12-month P/E ratio of 14.5 and a forward P/E of 12.2. The stock pays a small annual dividend of $0.32.

A word of warning: the auto industry is highly cyclical. It is in a boom phase right now, which is why Linamar and similar companies are doing well.

But this is not a buy-and-hold-forever stock. It should continue to perform well in 2014, but be ready to cash in if the economy starts to falter.

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