Shares of Magna International (TSX:MG) have been pretty flat year to date, now settling into a range after suffering a pretty big blow that saw share shed more than 47% from peak to trough. Today, at $79 and change, Magna stock stands out as an intriguing option to play various secular tailwinds in the auto scene.
Indeed, the auto part maker has been at the mercy of the booms and busts in the cyclical auto sector. Though nobody knows how low a bust can go as a recession strikes, I think investors hoping to get the most gains before the next boom need to get in well before a stock has the chance to heat up.
A stock like Magna can be tough to catch as it’s sinking or soaring. That’s the nature of the auto parts business. With some chance of recession already factored into the current valuation, I think Magna is a compelling value option, as we inch into a potentially volatile second half of 2023.
Magna stock getting cheap going into September
At writing, shares of Magna trade at a mere 18 times trailing price to earnings (P/E), with a 3.2% dividend yield. Over the past five years, shares have returned a mere 12.1%. Looking ahead, Magna seems like it’ll benefit a great deal from the ongoing rise of electric vehicles (EVs).
The company recently committed to invest over US$790 million to construct three electric part facilities. Indeed, it’s an expensive move, but a bold one that shows us Magna is serious about meeting the needs of automakers looking to electrify.
The company noted that such plants will help build battery enclosures and frames, among other parts that go into modern EVs. Personally, I’m a big fan of the deal and think the secular EV tailwinds will spread to Magna at some point down the line.
For now, though, there’s a recession to get through. Fortunately, I think Magna doesn’t have all too much downside from here, as it looks to do its best to make it through what could be a mild economic hailstorm.
Making smart moves amid bad times
While Magna isn’t immune to the ups and downs of the economy and the auto cycle, I think management deserves a round of applause for taking advantage of opportunities amid turbulent times. Such moves will help prepare Magna for what could be a very bountiful post-recession environment.
Aside from investing a great deal in constructing new plants, the company is also getting active on the merger and acquisition front, with the recent acquisition of Veoneer Active Safety. The deal bolsters the firm’s safety business in a major way!
The Foolish bottom line on Magna stock
Up ahead, Magna could be in a spot to start driving higher again. The company reported strong results for its last (second) quarter, with earnings per share of $1.50, ahead of the $1.23 estimate.
While headwinds could mount, I like the price of admission into Magna stock, while it’s going for just 0.4 times price to sales. There’s also the bountiful 3.2% dividend yield to collect while you wait for things to turn.
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* Returns as of 8/16/23
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