Is Magna Stock the Best Buy of 2023?

Magna (TSX:MG) stock dropped 15% after earnings, yet analysts believe this was far too much given the long-term trajectory of the stock.

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Magna International (TSX:MG) continues to be a difficult stock to handle. Magna stock fell dramatically from supply-chain issues, pandemic problems, and the weight of production continuing to hit the automobile manufacturer hard.

Yet after shares fell dramatically from quarterly earnings, some analysts believe now is a great time to consider the stock — especially after recent news hit headlines.

Expanding in Ontario

Despite recent poor earnings, Magna stock recently announced in February that it would put more than $470 million into Ontario operations. Part of this would include an an investment into an electric vehicle battery enclosure facility outside Toronto.

The announcement was coupled with a support by the Ontario government, giving Magna stock $23.6 million in funding to get started on a project that could create more than 1,000 jobs. The facility should be ready in 2023.

The news caused shares to recover from the earnings drop by 7%, but earnings continue to weigh on Magna stock. Yet the question posed by analysts is, should it?

Think long term: Analysts

When earnings came out, investors dropped Magna stock like a stone. Shares fell 15% within the day, and it was understandable from the outset. Fourth-quarter results and guidance through to 2025 were described as “soft,” warning of a slower recovery for the company.

Yet analysts were also quick to note that the drop seemed to be far more than was due. Some stated the risk/reward is quite balanced, given the potential for new business to emerge. That seems to be the case given the recent support by the Ontario government.

Further, the drop puts the stock within valuable range for some investors, who believe it could outperform this year once production is up and running at full capacity once more.

Long term, there are considerations to be made. First, of course, in the near term is the recession. This could certainly put pressure on the company and cause it to underperform. However, there is also a huge shift to needing vehicle production. With such a focus on end-to-end Ontario electric vehicle battery production, this could be a huge improvement in the next few years.

Bottom line

Magna stock seems to be oversold given the future potential it has. True, the recession will be difficult for Magna stock. Yet now could be the time to pick it up if you’re a long-term investor.

Shares remain down 16% in the last year but are still up 256% in the last decade. And this is certainly something to consider when picking up this long-term hold. The growth in the electric vehicle and battery sector is going to be massive. Should Magna stock identify this as the opportunity of its lifetime, we could see shares rebound by 256% once more — if not far beyond.

Meanwhile, Magna stock still offers a 3.34% dividend yield at the time of writing and trades at a reasonable 27.72 times earnings. It shares have moved by a compound annual growth rate (CAGR) of 13% over the last decade. The dividend has grown at a CAGR of 12% in the last decade as well.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Magna International. The Motley Fool has a disclosure policy.

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