Why Magna International Inc. Is Your Top Industrial Pick for 2015

Magna International (TSX:MG)(NYSE:MGA) is one of a few companies poised to take advantage of a rough 2015 for the stock market.

| More on:
The Motley Fool

Here in Canada we have a rather limited pool of companies to choose from when we set out to build our portfolios. In 2015, those few choices have dwindled down even further as the energy sector looks to be in the dumps for the rest of the year. That is why it is so important to look for that small handful of companies that will reap the benefits from all the turmoil.

One segment of the market that has gone unnoticed that past few years is Canada’s industrial sector, thanks in part to the near parity of the loonie and the U.S. dollar. Now things have changed and the industrial sector is primed to re-enter the limelight, with the star being Magna International Inc. (TSX:MG)(NYSE:MGA).

The dwindling dollar

Back when the loonie was at its high point, Magna, along with most exporting industrial companies, began to witness its American business dry up. Even Magna felt the pressure in its operations as fears grew that the big three U.S. auto makers would seek out its auto parts from Mexico or China to save on costs.

Just a few short months ago in May 2014, Don Walker the CEO of Magna stated that “at 85 cents, we’re already winning business in the Canadian plants. At this level we can be competitive.” Yesterday the loonie closed at $0.845 against the U.S. dollar giving Magna prices that are attractive enough to keep its business with Auto Makers.

A crash at the pumps leads to a surge in the showroom

Let’s make one thing clear, 2014 was a great year for auto sales in Canada. Over the summer numerous sales records were broken and by year end, 1.85 million cars were sold in the county. Many did not expect this trend to continue into 2015, but something unexpected happened: crude oil prices took a trip back in time and changed everything.

This in turn has brought down the price of both gasoline and diesel to levels unseen for some time and there are some regions where the price of regular gasoline is under $1.00. It is the same story south of the border and this has led to a surge in auto sales. This is especially evident by the recent spike in SUV and truck sales on both sides of the border. Here in Canada, truck sales in 2014 rose by 11%, going against the trend of smaller more efficient vehicles. It appears that the allure of cheap gas in the short term is enough to get people buying.

In December alone we see some truly staggering numbers here in Canada: Chrysler saw a 40% increase in sales in December while General Motors saw its Canadian sales in December rise by 13%, as a whole nationwide auto sales rose by 16% in December.

All of this is great news for Magna as the big three U.S. automakers make up a significant portion of its sales. This trend of record auto sales has potential to continue until the spring clearing out car dealership lots, which up until 2013 have seen little movement.

The perfect storm

For Magna, these record sales will take a little longer to make a difference to the company’s financials, as many auto companies have already launched the first wave of their 2015 offerings. If these sales continue auto manufacturers will undoubtedly increase their production rates going forward leading to more purchases from Magna.

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 Cameron Conway has no position in any stocks mentioned.

More on Investing

Red siren flashing
Investing

ALERT: 3 Base Metal Stocks to Buy Today

The TSX is in a rut in late September, but base metals stocks like Teck Resources Inc. (TSX:TECK.B)(NYSE:TECK) are still…

Read more »

Golden crown on a red velvet background
Dividend Stocks

A Canadian Dividend Aristocrat That’ll Pay Passive Income Investors Through a 2023 Recession

CIBC (TSX:CM)(NYSE:CM) stock looks like a dividend bargain to pick up right now.

Read more »

Question marks in a pile
Bank Stocks

Is CIBC (TSX:CM) 1 of the Best Bank Stocks to Buy Now?

Although all of the Big Six bank stocks in Canada have fallen in value this year, CIBC looks like it…

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Stocks for Beginners

Why Dye & Durham (TSX:DND) Is Rallying Despite its Worse-Than-Expected Q4 Earnings

Here are the main reasons why DND stock has seen a sharp rally in the last few sessions.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Investing

TFSA Investors: 2 U.S. Stocks I’m Never Selling

Do you invest in stocks that trade in the U.S.? They could be excellent additions to your portfolio. Here are…

Read more »

Target. Stand out from the crowd
Investing

3 Stocks I Own and Will Buy More of if They Fall

Growth stocks like Constellation Software (TSX:CSU) are attractive right now.

Read more »

hand using ATM
Dividend Stocks

Should You Buy Royal Bank Stock at Current Levels?

RY stock has dropped 20% since January, underperforming broader markets. Is Canada's biggest bank still a buy?

Read more »

Golden crown on a red velvet background
Investing

Foolish Unveil: This Future TSX Dividend King Could Rocket Higher in 2023

Restaurant Brands International (TSX:QSR)(NYSE:QSR) is a Dividend King in the making to buy right now.

Read more »