Ticker: MGA, Buy below $50.
Why I Would Buy
1. Cheap – Magna trades at 8x current earnings and an astounding 5x forward earnings!
2. Investment grade credit rating – Magna’s long term senior debt was already investment grade, it was recently upgraded another notch by Moody’s (from Baa1 to A3).
3. Upbeat Analyst Consensus–5 star “strong buy” rated by S&P, 9.7 equity consensus score by Reuters’ (at Fidelity) .
4. Low Debt – Just 25% of the capital structure is comprised of debt.
5. Low Payout Ratio – Magna pays out less than 20% of its earnings as dividends.
What Could Go Wrong
1. Trump and NAFTA – About 60% sales of Magna’s sales is spread across Canada, US and Mexico, enough said!
2. Highly Cyclical – The automotive industry is highly cyclical, Magna is probably riding the crest of an industry peak right now ( the company lost money during 2009 recession).
3. Meagre Returns of Equity – RoE is my favorite metric for picking stocks, Magna has earned anemic single digit returns on this metric.
Disclosure: I am long MGA, please read additional disclosures here before taking any action based on this post.