Magna International (TSX:MG) is a terrific, well-run auto-parts maker that’s positioned to capitalize on the secular rise of next-generation autos, like EVs (electric vehicles) and potentially AVs (autonomous vehicles). Indeed, Magna is an innovative firm that’s continuing to adapt to the high-tech age. The company’s latest EtelligentForce powertrain system is just one example of an innovation that could help make future EVs even better.
Though I’m a big fan of Magna and its innovative capabilities, it’s not immune from the macro forces. With all the recession talk, it may be a tad too soon to reach for the market’s most cyclical discretionary names.
The auto parts business can boom when things are good, but when the economy tilts into a downturn, Magna stock can easily retreat ground in a hurry. Of late, I’d argue the stock has already priced in a pretty substantial recession. If consumer spending does take a big hit, demand for new autos could take a backseat for quite some time.
However, as the next business cycle kicks off, it’s names like Magna that hold tremendous upside for those investors brave enough to buy on a huge dip.
Magna stock is down more than 42% from its 2021 peak of $125 and change per share. It’s been tough sledding for more than two years now. And though it’s really hard to value the stock right here, I think longer-term thinkers may wish to watch it as a potential play on a post-recession economy.
Is the recession still on? How will it affect Magna stock from here?
It’s hard to pinpoint exactly when a recession would start. But I’m sure many investors are scratching their heads as to when this economic downturn is going to strike. Undoubtedly, it’s a recession we all saw coming. And if it doesn’t hit, we must ask ourselves just which indicators we’re looking at and whether or not they’re good ones to use to forecast a downturn.
Even if a recession doesn’t end up happening, the anticipation of it sure had many rushing to the exits for well over a year. Now that investors are punching their tickets back into stocks, one must not lose track of value. Just because the market is back in bull mode doesn’t mean there’s no value out there.
Arguably, there are a ton of lower-volatility stocks with pretty reasonable price-to-earnings (P/E) ratios. And if that recession never does materialize, a lot of appreciation could be in the cards in what I view as a potential “upside correction.” I think Magna stock may be one of them. From peak to trough, MG shares nearly got cut in half. If that doesn’t spell a looming recession, I don’t know what does!
Some people think a recession will be hard to avoid. However, I think there’s a shot that Canada may narrowly avoid falling into one if the right cards fall into place, and inflation continues its fall. The latest inflation rate fell to 3.4% for the month of May.
That’s encouraging, to say the least. Still, don’t expect the Bank of Canada to hold off at its next big meeting. Another few more rate hikes may be viewed as excessive, but I view it as a knockout blow to inflation.
The bottom line on Magna stock
Recession or not, Magna stock has already taken on so much damage. If you’ll be sticking around for the post-recession rebound (let’s say you’re committing to at least four years), MG stock is a potential value pick.
