Why Are Magna’s Shares Surging?

Yet more good news for Magna’s shareholders.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

On Monday, Magna International (TSX:MG)(NYSE:MGA) announced results for the final quarter of 2013, once again surpassing expectations.

The auto parts manufacturer reported sales of $9.2 billion, 14% above the fourth quarter of 2012, and earnings per share of $2.03 (36% growth year-over-year). Magna also announced a 19% increase in its dividend, which now stands at 38 cents per quarter. The shares jumped 2% on the good news, and now trade at about $100.

This is just the latest in a very good run for Magna and its shareholders. In late 2011, the company was losing money in Europe, and many investors were still upset with a deal that gave Frank Stronach U.S $863 million for giving up control of the company. The stock was trading below $35 per share.

Over the past two and a half years, everything has gone right for Magna. The American big three car manufacturers – General Motors, Ford and Chrysler – have all rebounded exceptionally since the economic crisis, giving Magna a nice lift in North America. The company also has done well resolving its issues in Europe. And Magna’s multiple has improved dramatically as well – in late 2011, the company traded at under eight times earnings. Today that ratio has improved to nearly 15x.

Canada’s second largest auto parts manufacturer, Linamar Corporation (TSX:LNR), has also benefited from a resurgence in autos, with its stock price tripling since late 2011. Anyone brave enough to buy the shares five years ago, at the depths of the economic crisis, would have seen their shares increase by a factor of 18.

Foolish bottom ine

As mentioned previously, in late 2011 Magna was trading unreasonably low for all the wrong reasons – fund managers were afraid of looking bad just by owning the shares. Clearly the sweetheart deal for Mr. Stronach was still fresh in everyone’s mind, and the problems in Europe weren’t helping either. As those issues have been forgotten and resolved, the shares have responded accordingly.

So the best opportunity to buy the shares has likely passed. But the company remains a great case study for all investors. If one is willing to overlook some short-term issues, isn’t afraid of looking foolish, and is willing to be patient, there are some tremendous opportunities in the market. Magna was just one of many examples.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article.

More on Investing

funds, money, nest egg
Dividend Stocks

TFSA Passive Income: 2 Great Canadian Dividend Stocks for Retirees to Buy Now

Retirees seeking reliable passive income can now buy top TSX dividend stocks at cheap prices.

Read more »

man window buildings
Stocks for Beginners

Foolish Beginners: 1 Stock Pick to Buy Now for a $6,000 TFSA

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) stock looks cheap as shares regain their footing.

Read more »

data analyze research
Dividend Stocks

Earn Monthly Passive Income: 2 Hot Dividend Stocks in Canada to Buy Now and Hold Forever

These two hot dividend stocks could help you to earn stable monthly passive income in Canada.

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Dividend Stocks

Be a Landlord: Top 2 REITs (With Monthly Dividends) I’d Buy and Forget

You can be a landlord and earn monthly dividends for the rest of your life. All you need is the…

Read more »

Target. Stand out from the crowd

3 Canadian Stocks to Buy That Beat Their Earnings Expectations This Week

If you're looking for top Canadian stocks to buy, here are three impressive companies that continue to perform well in…

Read more »

A stock price graph showing declines
Energy Stocks

2 Cheap Canadian Stocks That Likely Won’t Be on Sale For Much Longer

These two Canadian stocks are close to returning to all-time highs. Don’t miss your chance to take advantage of these…

Read more »

A worker gives a business presentation.
Dividend Stocks

Got $5,000? 3 Stocks to Hold for the Next 20 Years

New investors don’t need tens of thousands to start a portfolio. Here are three stocks to hold for the next…

Read more »

canadian energy oil
Energy Stocks

3 Rising Energy Stocks to Buy as Oil Hits 6-Month Low

Three rising energy stocks are strong buys today as their upward momentum is likely to continue due to the tight…

Read more »