Amid signs of easing inflation, solid quarterly performances from prominent companies, and strengthening of oil prices, the TSX/S&P Composite Index has increased by 3%. Despite a robust broader equity market, few companies trade at a substantial discount compared to their 52-week high. Meanwhile, here are two stocks that I am bullish on, given their long-term growth potential and attractive valuation.
Magna International
Magna International (TSX:MG), an auto parts manufacturer, has been under pressure over the last few months amid concerns about lower vehicle production due to chip shortages and UAW (United Auto Workers) labour strikes. The company’s cautious outlook amid the challenging macro environment has also weighed on the company’s stock price. It has lost over 15% of its stock value compared to its 52-week high. The correction has dragged its valuation down, with its NTM (next-12-month) price-to-sales and NTM price-to-earnings multiples declining to 0.3 and 8.9%, respectively.
Meanwhile, the company reported a solid fourth-quarter performance last month, with its revenue growing by 9.3%. Higher global vehicle production, new program launches, and favourable currency translation have boosted its sales. However, lower production due to the UAW labour strikes negatively impacted its sales by $275 million. Along with top-line growth, its cost-cutting initiatives and operational excellence boosted its EBIT (earnings before interest and tax), which grew by 52%. Further, the company’s adjusted EPS (earnings per share) stood at $1.33, representing a 41.5% increase from the previous year. It also generated $472 million of free cash flows and ended the quarter with cash and cash equivalents of $1.2 billion.
Further, the Aurora-based auto parts manufacturer continues to focus on strengthening its position in megatrend areas, such as Powertrain Electrification, Battery Enclosures, and Active Safety. It expects its revenue from the segment to reach $6.6-$7.2 billion by 2026, representing a CAGR (compound annual growth rate) of over 40%. The management expects the segment to turn profitable in 2026 amid solid growth. Further, the management expects its 2026 total revenue to be within $48.8-$51.2 billion, representing an annualized growth of 5.3%. Its adjusted EBIT margins could expand by 180 basis points. The company has rewarded its shareholders by raising its dividend for 14 consecutive years and currently offers a forward yield of 3.49%.
Given its healthy growth prospects and attractive valuation, I believe Magna International would be an excellent buy at these levels, despite the macro challenges.
BlackBerry
BlackBerry (TSX:BB) is another stock that has been under pressure over the last few months, losing around 54% of its stock value compared to its 52-week high. The lower-than-expected growth in its IoT segment and weak fourth-quarter fiscal 2024 guidance have weighed on the company’s stock price. The company has blamed production delays amid the UAW labour disputes and delays in adopting complex automotive software solutions by OEMs (original equipment manufacturers) for lower growth.
However, the increased awareness about vehicle safety has created a long-term demand for its Advanced Driver Assistance Systems platform. Further, the Waterloo-based company is well-positioned to benefit from the growing popularity of connected and autonomous cars, given its IVY platform, which collects, analyzes, and monetizes data. Its cybersecurity segment is growing steadily amid expanded product offerings and a blue-chip customer base. So, I believe investors with long-term investment horizons can utilize the steep correction to accumulate the stock to earn superior returns.
