The S&P/TSX Capped Consumer Discretionary Index was up 1.1% in early afternoon trading on Tuesday, June 27. Today, I want to look at two of the top automotive parts manufacturers in Canada: Magna International (TSX: MG) and Linamar (TSX: LNR). Which of these two automotive stocks is the better buy in the early summer season? Let’s jump in.
How does Magna stock look in late June?
Magna International is an Aurora-based company that designs, engineers, and manufactures components, assemblies, systems, subsystems, and modules for original equipment manufacturers of vehicles and light trucks around the world. Shares of this automotive stock have increased 1.6% month over month at the time of this writing. The stock is still down 9% so far in 2023. Investors can see more of its recent performance with the interactive price chart below.
This company released its first-quarter fiscal 2023 earnings on May 5. Magna delivered sales growth of 11% year over year to $10.7 billion while posting light vehicle production growth of 3%. EBIT stands for earnings before interest and taxes. Magna posted adjusted EBIT of $437 million in the first quarter of fiscal 2023 — down from adjusted EBIT of $507 million in the previous year. Meanwhile, adjusted diluted earnings per share (EPS) fell to $1.11 compared to $1.28 in the first quarter of fiscal 2022.
Looking ahead, Magna projects total sales between $40.2 billion and $41.8 billion for the full year in fiscal 2023. Moreover, it is forecasting net income between $1.3 billion and $1.5 billion compared to its previous projection of $1.1 billion and $1.4 billion.
Shares of Magna currently possess a price-to-earnings (P/E) ratio of 35, putting this stock in favourable value territory compared to its industry peers. The stock offers a quarterly dividend of $0.46 per share. That represents a 3.4% yield.
Should you look to Linamar in the early summer season?
Linamar is a Guelph-based company that produces engineered products in Canada, Europe, the Asia Pacific, and the rest of North America. Its shares have jumped 5.1% over the past month. The stock has now increased 8.3% in the year-to-date period.
Investors got to see Linamar’s first batch of fiscal 2023 earnings on May 10. Total sales climbed 28% year over year to $2.29 billion. That represented a new record for the first quarter. Moreover, normalized EPS surged 83% from the previous year to $1.98. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. Linamar delivered adjusted EBITDA of $297 million — up from $210 million in the previous year.
On the operational front, the company benefited from an increase in agricultural sales and global market share growth in all core products. However, it did experience a sales dip in Asia due to lower production that was a result of lingering COVID-19 shutdowns.
Linamar stock still possesses an attractive P/E ratio of 9.5 at the time of this writing. This stock offers a quarterly dividend of $0.22 per share, which represents a modest 1.3% yield.
The verdict
While Magna is the true heavyweight in this fight, Linamar’s earnings and value are too hard to pass up in the early part of the 2023 summer season. Linamar offers great value compared to its peers, and it has posted very impressive sales growth in recent quarters.
