Magna International (MGA)
Tuesday, December 9th, 2008I have not investigated this one in detail. However, the facts as I know them:
Magna is an auto parts supplier. As such, it’s stock price has been hammered, like the rest of the industry. However, they have almost no long term debt, and $21.29 cash per share, compared to a ticker price of $31.50. So, you are buying the business for about $10/share. Compares that to last year’s free cash flow - $14.75. At that, it is trading at less than 1x trailing FCF.
Now, I haven’t looked at their future prospects in detail. ValueLine projects FCF of $13.95 this year, and $15.65 next year. I put little stock in predictions, even ValueLine’s. The question is, how much of their business depends on Detroit? In the medium to long term there is no way the world is getting rid of autos, so to my way of thinking now is the time to buy so long as you aren’t betting on a specific auto manufacturer to survive. Some are going to fail. Chrysler is 13%, Ford is 15%, BMW is 19%, and GM is 24%.
With this huge cash flow and no real exposure to the credit market, MGA stands to make acquisitions of it’s flailing competitors.
I haven’t sorted out the risk/reward equation for this in my mind yet, so I have not purchased shares. Given the number of riskless investments in this environment, I find it hard to take on much risk right now. However, the FCF yield is extremely compelling right now.