The Canadian stock market has not been spared from a global stock market sell-off that was sparked in early October.
Savvy investors will always perk up during turbulent periods. It is during pullbacks where the groundwork for future gains are lain, and the bloodbath in October is no different. That is why we will be looking at equities that are potential discounts in the final days of October.
Today we’ll focus on the two largest auto parts manufacturers in Canada. Earlier this month I’d discussed how the United States-Mexico-Canada Agreement (USMCA) may impact both companies going forward. The deal has yet to be ratified, but more details have trickled in that are worth consideration for investors before we take a snapshot of both stocks.
The framework of the deal raised the tariff-free threshold for North American auto content to 75%. Industry experts are predicting that Canadian automakers will face higher manufacturing costs due to the USMCA, and this could projection could be higher if steel and aluminum tariffs remain in place.
The USMCA will also stipulate that 70% of steel and aluminum in vehicles will need to come from North America. However, these costs will be manageable after companies make the necessary tweaks to supply chains to meet new regional content requirements.
Auto parts manufacturers will face a period of adjustment, but Canadian industry leaders are unlikely to see a deterioration of their long-term outlooks. New wage requirements for auto labourers also favour manufacturers in the United States and Canada going forward.
Magna International (TSX:MG)(NYSE:MGA)
Magna stock has dropped 6.7% month-over-month as of close on October 26. Shares are down 19% over a three-month span. Magna stock reached an all-time high of $87.12 back in June on the back of yet-another record quarterly earnings release.
A deterioration in trade talks had a negative impact on Magna during the summer. Fortunately, trade fears were partially alleviated when Canada and the United States came to a tentative agreement before the U.S.-imposed October 1 deadline. A difficult month for stock markets in the developed world has followed, but Magna stock looks like a good value in late October. The company is set to release its third-quarter results on November 8.
For the first six months of 2018, Magna has reported $21 billion in sales compared to $18 billion in the prior year. Diluted earnings per share have also climbed to $3.60 compared to $2.65 in the first six months of 2017.
Linamar Corporation (TSX:LNR)
Linamar stock has dropped 8.7% over the past month. Shares have plunged 25.8% in 2018 so far. Linamar is set to release its third-quarter results on November 7.
For the first six months of 2018 Linamar has posted record sales of $4.05 billion compared to $3.42 billion in the prior year. Linamar reported year-to-date adjusted net earnings of $357 million or $5.40 per share compared to $307 million or $4.65 per share in the first six months of 2017.
