Auto parts companies with exposure to faster-growth hybrid and electric vehicles like Magna International and Linamar Corporation are likely to do well in 2022 and beyond.
It’s been a difficult few years for the auto industry. Global light vehicle production declined from 2017 to 2020. The ongoing pandemic and severe supply chain shortages kept the growth in 2021 in check. However, this is setting up a scenario where production can grow on a multiyear basis. In particular, auto parts companies with exposure to faster-growth hybrid and electric vehicles like Magna International (MG.TO) and Linamar (LNR) can do well.
Linamar Corporation (LNR.TO)
Linamar Corporation is a Canada-based manufacturing company. The Company is engaged in providing manufacturing solutions and developing engineered products. It operates under two segments, namely the Industrial and Mobility segments. The Industrial segment is consists of Skyjack and MacDon. Skyjack manufactures scissor, boom, and telehandler lifts for the aerial work platform industry. MacDon manufactures combine draper headers and self-propelled windrowers for the agricultural harvesting industry.
The Mobility segment is subdivided into three regional groups: North America, Europe, and the Asia Pacific. Within the Mobility segment, the regional groups are vertically integrated operations engaged in light metal casting, forging, machining, and assembly for on and off-highway vehicle markets. The Mobility segment products focus on both systems and components for new energy power-trains, body and chassis, driveline, engine, and transmission systems of these vehicles.
The company currently has a PEG ratio of 1.1 and has seen free cash-flow (PS) grow consistently from 5.32 in 2015 to 14.1 currently, which is a CAGR of over 26%. At the current market price hovering around C$70 this could be an opportune time to add Linamar to your portfolio, as the stock has dipped roughly 8.5% since the beginning of the year and analysts project a one year target stock price estimate in the range of C$97, with a potential of an eye popping 38% upside from current prices.
Magna International Inc (MG.TO)
Magna International Inc. is a Canada-based mobility technology company. The Company’s segments include Body Exteriors & Structures, Power & Vision, Seating Systems, and Complete Vehicles. The Company is a global automotive supplier with vehicle engineering and contract manufacturing operations. It also has significant product capabilities, including body, chassis, exterior, seating, power-train, active driver assistance, electronics, mechatronics, mirrors, lighting, and roof systems. It also has electronic and software capabilities.
Its products include body structures, chassis structures, trim and engineered glass, active aerodynamics, energy storage systems, electrified power-train technologies, conventional power-train technologies, power-train subsystems and components, complete vehicle engineering, and foam and trim, amongst others. Its global network includes approximately 347 manufacturing operations and 87 product development, engineering, and sales centers across 28 countries.
The company currently has a PEG ratio of 0.5 and has seen free cash-flow (PS) grow from 1.80 in 2015 to 8.19 currently, at a CAGR of over 30%. The company also has a dividend per share CAGR of 13.30% over the last 3 years. At its current market price of around C$104 this is a ripe time to buy Magna, as the stock has dipped roughly 10% since the beginning of the year and analysts estimate a one year target price for the stock in the range of C$128 with a potential of 24% upside from current prices.