Martinrea (MRE.TO)

(A Top Pick Nov 23/17. Up 3%.) This is still very strong. It is going a little bit sideways. He still likes it. It is in a holding pattern going sideways after its big run up, and is in a "trend continuation" pattern.

This has done phenomenally well. In the auto parts space, there is the big story of peak auto, with North American auto production going down. In Q4 production was down 6%. In this company's case, they have a nice ability of being able to grow because of cost cutting. They’ve really been executing on their business plan, and made a number of investments that are starting to pay off. She thinks the shares will go higher.

It has taken off pretty significantly in the last number of months. Looking at the 10 year picture, it has broken out here. It would be bad news if it dropped back into the range it broke out of. It has to stay above $14 and then there will be room to the upside. This could waver a bit based on what happens with NAFTA.

This has risen 30% since he talked about it Nov 15/17, but thinks it is still attractive. On March 1, they are expected to report a 31% increase in the year-over-year earnings. Trades at 5.4 enterprise value to EBITDA on a trailing basis against 15% EBITDA growth. Dividend yield of 0.8%. (Analysts' price target is $17.)

Chart shows there has been a bit of a downtrend over the years, but starting in March of this year, it had a very, very healthy breakout. It is currently at the highest point it has reached in 5 years, which means it will probably go even higher. If he had to pick an exit point, it would probably $20 or $21, but it is really too early to say. If you own, keep riding the uptrend, and use a 10% Trailing Stop.

Linamar (LNR-T) vs Magna (MG-T) vs Martinrea (MRE-T) Has a small position in Magna (MG-T) which is the largest of the three. At this point in the auto cycle in North America, would be very hesitant about adding more. Thinks the bump up in number of vehicles in North America is plateauing. Very cyclical. You can see earnings and cash flow really degrade quickly rapidly. It’s one he would be careful and look for opportunities to sell on strong.

Because of the NAFTA overhang, this has had a very low valuation. However, it is a very good company. Has a very strong position in “light waiting”, the auto sector manufacturers that try to make cars lighter and lighter and be more energy efficient, but still strong. Margin improvement has been very good. In spite of the strong rise in the stock price, it is still cheap at 7X Forward Earnings. Dividend yield of 0.8%. (Analysts’ price target is $17.00.)

(A Top Pick Nov 16/16. Up 88%.) If you have a cheap stock, just be patient with it. In this case, this was just a cheap stock trading at about 6 or 7 times earnings, 3 times operating cash flow.

They use Memex as real-time manufacturing software to improve productivity. Shares have gone up and there is more to come. Dividend yield of 1%. (Analysts’ price target is $15.50.)

They are doing a great job. They ended up having earnings up 27% last report. They are the best earnings to date. The stock is cheap and attractive. (Analysts’ target: $15.50).

It has done well. Auto parts. It is probably still good value here. They are gaining market share. His concern is the cycle nearing the end. He is concerned we are getting close to the end of the cycle. The business is being well managed.

The valuation is better than others. He was out for a number of years while the auto industry went through some changes. They are a leader in lightweighting cars, in making cars more fuel efficient. (Analysts’ target: $14.00).

Linamar (LNR-T), Magna (MG-T) or Martinrea (MRE-T)? He doesn’t find the overall environment for auto parts manufacturers very constructive. US auto sales are at their highest levels, running north of 17 million units. This is the 2^nd or 3^rd year that has been going on. There is the NAFTA free trade agreement in question. Also, auto loans are coming into real focus, which in his view, are not very positive. There is some debate as to how these companies can move from an internal combustion engine to an electric car. This is too dangerous a time to be going in right now.

Canadian auto parts supplier. This has had its struggles over the last decade or so and they’ve gone through a difficult restructuring period. They are impacted by the global level of vehicle demand, particularly in North America. The OEM inventory levels being carried now is higher, which means it will push back on the suppliers, which is an issue. The valuation is reasonable.

This one is cheap and has a little more operational leverage than the other two in the group. It has a reasonable return on equity. It is cheap on a price to earnings ratio. It is a reasonably cheap company with some operating leverage. (Analysts’ target: $13.00).