After witnessing about 26% value erosion in 2022, shares of Magna International (TSX:MG) have traded on a mixed note in 2023 so far. As of December 14, MG stock was trading with 3.3% YTD (year to date) gains at $78.54 per share with the help of a recent recovery in its share prices. While recent gains have helped this dividend-paying stock turn positive on a YTD basis, it’s still continuing to underperform the broader market as the TSX Composite benchmark has risen 7.2% this year.
Before we explore whether it’s the right time to buy Magna stock for the long term, let’s review some key fundamental factors that could be responsible for its recent roller-coaster ride.
Reviewing Magna’s stock price movement
If you don’t know it already, Magna International is an Aurora-based auto parts maker and mobility firm with a market cap of $22.3 billion. It specializes in making high-quality vehicle parts and supplying these parts to car manufacturers like GM, Ford, or Toyota. Magna works closely with several such big car companies, understands what they need, and then creates those parts specifically for them. This means Magna also needs to remain updated about the latest automotive industry trends, like electric vehicles or self-driving technology.
As the global automotive industry struggled to produce vehicles due to massive supply chain disruptions and other economic challenges in the post-pandemic era, Magna International’s business went through a tough period of uncertainty, also affecting its financial growth.
In 2022, the company managed to post a 4.4% YoY (year-over-year) increase in its 2022 revenue to US$37.8 billion, despite these challenges. However, several negative factors, including foreign exchange headwinds, higher net engineering, labour, and freight costs, strengthening commodity prices, and inefficiencies, hurt its profits. As a result, Magna registered a 20.1% YoY decline in its adjusted earnings last year to US$4.10 per share. This could be the primary reason why MG stock fell sharply in 2022.
Although global vehicle production witnessed big improvements in 2023, concerns that a weak economic outlook amid rapidly rising interest rates could hurt Magna’s financial growth trends kept hurting its investors’ sentiments in the first three quarters. On the positive side, a sharp recovery in MG stock started in November after cooling inflationary pressures raised the possibility that the central banks in the United States and Canada will soon start easing their monetary stance, which could eventually improve economic growth. As a result, Magna stock has rallied nearly 18% since the end of October 2023.
Is Magna stock a buy today?
In the first three quarters of 2023, Magna International’s total revenue has grown positively by 14.4% YoY to US$32.3 billion. More importantly, its adjusted earnings during these nine months have jumped 28% YoY to $4.07 per share.
As economic growth is likely to improve in the near term with the U.S. Federal Reserve recently hinting toward the possibility of multiple interest rate cuts next year, the demand for Magna’s auto parts could increase. Given that, we can expect the company’s financial growth trends to continue strengthening, which could help its share prices rally, making Magna stock attractive to buy now to hold for the long term. Besides that, its annualized dividend yield of 3.4% makes MG stock even more attractive.
