The TSX Composite Index surged more than 9% in the last 12 months, while Magna International (TSX:MG) stock fell 9.9%. This automotive component supplier has been in a downtrend since June 2021, falling 49% from its all-time high of over $121. At the time of writing, the stock is trading near its three-year low of less than $64. Is the stock done dropping?
Magna stock price momentum
Magna stock has been in a downtrend for multiple reasons. The automotive industry is undergoing various headwinds. With every headwind the stock falls but surges when the headwind clears. The company makes components such as body exterior, power and vision, and seating systems and supplies them to several top automakers. It also assembles complete vehicles for auto and tech companies.
Magna’s earnings have been volatile since the pandemic. When the pandemic restrictions were lifted, it saw a significant surge in demand but a shortage in semiconductor supply since factories were closed during the lockdown. That is when the stock saw a sharp 40% dip in the first six months of 2022. When supply eased, demand fell due to high inflation and rising interest rates, driving the stock down another 20% between August and October 2022.
Fortunately, Magna stock was done dropping and saw an uptick in the 2022 holiday season. It surged 36% as the demand for lightweight vehicles picked up, especially in China and North America. However, Magna stock saw another steep dip of 20% in February 2023 as it reported weak 2022 earnings. Since then, the automotive demand has normalized, and Magna has completed its restructuring. The outcome is visible in short growth phases in which the stock surges double-digits followed by a dip.
Is Magna stock done dropping?
Magna stock’s volatility has tested the patience of several long-term investors waiting for the electric vehicle (EV) boom. MG is sensitive to macroeconomic situations as a car, especially lightweight vehicles, is a discretionary good. The stock has dropped 15% since May 21 as US March inflation numbers pulled down the market. Higher inflation reduced hopes of interest rate cuts in 2024 from three to one.
And in its latest first-quarter earnings, Magna lowered its 2024 revenue outlook to US$42.6 billion to US$44.2 billion from the February 2024 outlook of US$43.8 billion to US$45.4 billion. The outlook is a reasonable assumption made by Magna as of May 3. Magna states…”The 2024 Outlook above and the underlying assumptions may prove to be inaccurate.”
It hints that these are uncertain times, and Magna is not yet out of the woods. Rising raw material prices and high interest rates could keep global vehicle demand volatile. Magna’s stock could drop further in 2024.
However, Magna is still a stock worth buying for the long term. It has been improving its profitability. The company is also a regular dividend payer and has grown its dividend annually for over a decade. It continues to invest in EV and autonomous vehicle (AV) solutions.
Is this stock a buy-the-dip?
Magna is a cyclical stock and currently in a downtrend. However, it has a strong balance sheet and profitability to sustain a downtrend. Moreover, its advanced solutions make it ready for the next upcycle.
An investing strategy that could work well for a cyclical stock is dollar-cost averaging. Instead of investing a large amount, you can invest small amounts every month throughout the downturn. If I were to proffer a range, I would buy the stock whenever it dips below its 200-day moving average of $74.
If you keep accumulating Magna shares on every dip, the average cost per share will fall. In the next automotive upcycle, you could sell shares in phases and book profits. In the meantime, the company will give you a 3-4% dividend yield, adjusting your investment for inflation.
