Magna International (MGA): Buy Shares at a Discount?

Last week’s broader tech selloff dragged down stocks in general, with the S&P 500 seeing a 2% drop. Thanks to that, perfectly healthy companies have seen their share prices drop — which presents an opportunity for the discerning investor.

The way to make use of it is to find a stock that has both healthy fundamentals, an intact growth trajectory, and which is now trading at a discount. Well, we’ve found one — today we’ll be taking a look at Magna International (NYSE: MGA).

This $12.69 billion market cap Canadian auto part manufacturer has a history stretching back to 1957, and employs roughly 180,000 people. While it might be a behind-the-scenes play, it’s certainly no small fry.

Here’s why. This is the largest auto part manufacturer on the North American continent, and supplies the likes of General Motors, Stellantis, Toyota, Tesla, Volkswagen, Tata Motors, Mercedes, BMW…we could go on. It’s also quite active in China — but we’ll circle back to that later.

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First things first — MGA has a Zen Rating of A, and currently ranks in the top 1% of the stocks that we track. In fact, it ranks 36th overall out of the roughly 4,600 stocks that we track.

As you might know, stocks that rank in the top 5% according to our system have an average annual return of 32.52%.

What makes it so great? For that, we’ll have to turn to our Component Grade ratings. These appraise 7 key areas to determine where a stock ranks.

So, for example, thanks to a forecast earnings growth rate of 23.11% per year, combined with the rest of the 22 datapoints that our Growth rating considers, Magna International shares rank in the 90th percentile in this category — equivalent to or better than 90% of stocks, or, in other words, in the top 10%.

But growth prospects aren’t the only thing that this unassuming giant has going for it. Thanks to a 7.74% dip in the past week, MGA is currently trading at a very attractive price-to-earnings (P/E) ratio of 12.47x. 

The valuation is even more compelling when we contrast it with growth — the stock’s current price to earnings growth (PEG) ratio stands at 0.54x, indicating that it is severely undervalued. When looking at the Value Component Grade rating, MGA ranks in the top 4%.

In addition, this one’s got legs — MGA isn’t some undervalued gem that’s just waiting for its big break. Even when you account for the recent dip, it’s provided a 10.67% return since the start of the year — placing it in the 86th percentile for Momentum.

Magna International also stands out in terms of Sentiment — the average 12-month price forecast, currently pegged at $50.40, implies a 10.41% upside, and there has been no insider selling of the stock in the past 12 months. In this category, MGA ranks in the top 15%.

Last, but certainly not least, we have the Safety Component Grade rating, which measures stock price stability, revenue inflow stability and predictability, and the predictability of earnings. As an established, mature business, it’s little wonder that Magna International ranks in the 94th percentile in this category.

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What about peers and rivals? MGA belongs to the Auto Part industry, which has an Industry Rating of A. The Auto Part industry is currently the 17th highest-rated industry, out of a total of 145. Within the industry, MGA is the 3rd highest-rated stock — but it has a significant size advantage over higher-ranked competitors.

Let’s get our heads out of the numbers and metrics for a minute. MGA has provided two earnings beats in a row — and while it’s too early to call that sustained outperformance, it’s better than the alternative. 

In addition, the company has recently made several key announcements. Going forward, the business will expand its footprint in China with a newly-leased 160,000 square foot facility. To boot, Magna and GAC recently announced a partnership which will see increased vehicle assembly in Europe — both diversifying geographically and providing a bulwark against the EU’s tariffs on Chinese EVs.

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I really believe this one warrants a closer look. There’s a lot to like about MGA, and the 7.74% dip offers a great entry point for a long-term position. We’ll have to wait for January to see the company’s next quarterly report, but even with the information we have presently, this is a bet I’d take.

—> Click here to research MGA

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