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Hello USMCA! 1 Canadian Auto Stock to Buy and Hold Long Term

With trade tensions easing after the freshly inked USMCA (or NAFTA II, if you like) hit the headlines, auto stocks look set to rise this side of the border. The new agreement sets out protective measures friendly to Canada that would come into effect should the U.S. impose 25% global auto tariffs. However, steel and aluminum tariffs remain in place, with uncertainty hanging over their future.

The following stock should see some improvement on the back of the new trade deal. It’s well positioned to continue an upward trend, and we’ve included it here mainly on the strength of its ties with the booming Chinese electric vehicle (EV) market. This should see the stock overtake competing Canadian autos, whose upside may be limited once USMCA giddiness dies back down.

Magna International (TSX:MG)(NYSE:MGA)

A market cap of $23 billion puts Magna International in the lead when it comes to Canadian auto stocks, though an outlook of 5.4% still seems a little low considering the massive EV market it’s getting into in China. A P/B ratio of 1.6 times book tells you that you are still getting pretty good value for money with this popular auto stock. A one-year past earnings growth of 12.4% beats the industry average of 3.7% for the same period as well as its own five-year average past earnings growth of 7.8%.

A dividend yield of 1.95% isn’t too bad for a stock that has its true worth in its upside, while a low debt level of 37.4% of net worth makes for a pretty defensive stock that looks better by the minute. If you want to see just how high it can go, wait till the metal tariffs issue gets finally resolved and when those joint-manufactured EVs start rolling off the factory floor.

Meanwhile, this competitor continues to accelerate

Just for fun, let’s compare this solid Canadian auto stock, bolstered by its major Asian market agreement, against U.S. counterpart, Tesla (NASDAQ:TSLA). Tesla’s market cap of $45 billion is appreciably larger than Magna International’s, and its outlook of 67.8% in future earnings growth far outstrips our domestic stock, too. A P/B ratio of 11.6 times book still looks far too high, and after another roller-coaster dip and climb, that overvaluation is still climbing.

A one-year past earnings contraction by 255.3% is pretty worrying, though it has been a period of intense expansion of development for Tesla. The U.S. auto industry average is up at 20.8% for the same period, if you need to compare. Meanwhile, Tesla’s five-year average past earnings contraction by 50% shows you where it’s coming from in terms of shrinkage. A debt level of 254.6% of net worth adds to the risk factor of this stock.

The bottom line

Magna International is a stock that still has a good valuation and would make a strong play for anyone looking to get in on the electric vehicle market, such as non-traditional auto fans, tech aficionados, or ethical investors looking to pad out a green energy or emerging markets portfolio. It’s also less volatile than Tesla, though that could even out in the long run depending on the latter stock’s management.

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Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Tesla. Tom Gardner owns shares of Tesla. The Motley Fool owns shares of Tesla. Magna and Tesla are recommendations of Stock Advisor Canada.

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