Canada spent much of the Canada Investment Summit talking about the industries it would like to build someday.
Linamar (TSX: LNR) offered a rather useful reminder that Canada already builds plenty.
Executive Chair Linda Hasenfratz appeared on the summit’s “Built to Last: Defence and Advanced Manufacturing in Canada” panel alongside the heads of CAE, Bombardier, and Telesat. The discussion centred on whether Canada has the factories, workers, and technology needed to benefit from rising defence spending and a broader push to manufacture more at home.
Hasenfratz’s answer was pretty emphatic.
“Our Canadian manufacturing locations are our most productive in the world,” she told the audience.
For investors, that’s considerably more useful than another promise about what Canada might become.
Source: Getty Images
Canada already has a manufacturing advantage
Hasenfratz pointed to several reasons companies can manufacture competitively here: skilled workers, supply chains, relatively clean electricity and access to technology. She also made a striking productivity claim.
“Manufacturing productivity is growing at twice the rate in Canada than it is in the U.S.”
Labour costs alone don’t determine where companies manufacture. Productivity measures how much output those workers and factories can actually produce. Better factories can offset higher wages by making more with less.
Technology is becoming part of that advantage. Hasenfratz specifically highlighted investment in artificial intelligence and other technologies across Canadian manufacturing. Yet perhaps the most interesting comment came when she discussed the current disruption in global trade.
“We have won record levels of new business in the last 12 months,” she said of Linamar’s Canadian plants, adding, “We’ve never won this much business.”
Why I’d buy Linamar
Linamar manufactures highly engineered components and systems used in vehicles, agricultural equipment, and industrial machinery.
Its biggest operation, Mobility, supplies automakers with everything from powertrain components to structural and electrified vehicle products. The Industrial segment includes businesses such as agricultural equipment and access platforms.
That diversification is useful when tariffs, electric-vehicle adoption, and global supply chains are changing almost weekly. Hasenfratz described flexibility as one of Linamar’s biggest advantages. Its manufacturing equipment can often be retooled and reprogrammed as customer demand shifts.
Recent results suggest that strategy is working. Second-quarter sales climbed 18.8% to a record $3.1 billion, while normalized earnings per share (EPS) increased 9.6% to $3.08. Mobility sales reached a record $2.4 billion, with operating earnings jumping 28.6%. Linamar also generated $236.5 million in free cash flow during the quarter.
Into value
Linamar shares recently traded around $99, giving the stock a forward price-to-earnings ratio of only about 8.2. That’s the part I like most.
Investors aren’t paying a technology-stock valuation for Linamar’s exposure to automation, advanced manufacturing, and electrification. They’re getting a profitable industrial business producing more than $11 billion in trailing revenue at a valuation normally associated with considerably duller companies.
There are reasons for the discount. Auto manufacturing is cyclical. Tariffs can scramble supply chains, while slowing vehicle demand could hit volumes. The transition between combustion, hybrid, and electric vehicles also forces suppliers to keep investing without knowing exactly which technology ultimately dominates.
Linamar’s strategy is essentially not to guess. It wants the ability to manufacture components regardless of which technology wins.
Bottom line
Canada’s summit was filled with discussions about bringing investment, factories, and advanced manufacturing back home. Linamar doesn’t have to wait for that trend to arrive.
According to Hasenfratz, its Canadian factories are already winning more business than ever. At roughly eight times forward earnings, investors aren’t exactly being charged admission to watch.
