Tesla (NASDAQ:TSLA) remains the premier electric vehicle (EV) maker most often used as a benchmark in the EV sector. Indeed, early investors have been well-rewarded in owning this name, with TSLA stock surging more than 13,000% since its initial public offering. That said, I thought I’d focus investor attention on another under-the-radar EV-related company I think could have more upside over the next five years and outperform on a relative basis. I’m talking about Magna International (TSX:MG).
A company many investors may not necessarily associate directly with the EV sector, due to the fact Magna provides parts and service to other internal combustion engine manufacturers as well, it’s a growth stock I think warrants attention in this current market.
Strong long-term growth potential
Magna’s recent revenue growth rates have been impressive, with the company bringing in double-digit growth in both 2021 and 2022. As a major supplier to the EV sector, Magna can be viewed as a picks-and-shovels play on this space. That’s one of the key reasons I like the stock and have focused on it in the past.
Notably, Magna’s revenue growth rate has actually picked up in recent quarters, growing around 15% in the third quarter (Q3) of 2023. Gross and net income margins have also improved as a result of increased light vehicle production in the company’s core markets.
Overall global light vehicle production grew 4% in Q4 of last year, with more growth expected for 2024. I think Magna’s positioning as a key provider of parts and materials for this sector is worth considering. The company’s diversification and probability of success (in being able to shift from company to company, depending on how the market moves) make this a preferable way to play EV growth. Indeed, companies like Tesla simply carry too much idiosyncratic risk — I’d rather own a major supplier to the overall industry than one player alone.
Recent earnings highlight strength
Magna’s recent earnings reflect this sort of sentiment. The company brought in earnings per share of $5.70 over the past year, reflecting a rather attractive multiple of just 12.8 times earnings. Magna’s net profit also covers its dividend distortion well, with the company paying out $2.56 of its earnings to shareholders directly (reflecting a yield of more than 3.5%). That’s the sort of income and growth profile I like, and many value-conscious investors can get behind.
Notably, Magna’s market beta is much lower than Tesla’s, reflecting the reality that this is a much less volatile way to play the growth many EV investors expect to see in the coming decades.
Bottom line
Overall, Magna International remains a top growth stock that long-term investors looking for EV exposure may want to add. It’s an overlooked play. However, companies with the most attractive risk/reward upside are usually less covered than the high-priced stalwarts.
