Martinrea (MRE.TO)

(Top Pick Oct 9/15, Down 25.38%) They beat their estimates. The growth has started to come back after a couple of years. They bought great aluminum factories and that metal is becoming popular in autos. The next recession in autos is already priced into this stock.

He follows the industry and owns LNR-T because it is better managed and initiates new programs for the auto industry. It has higher earnings growth. He prefers LNR-T.

They are expanding in Mexico and China. They have a new management team that is doing all the right things. It is trading at 5 times this year’s earnings. It is by far the least extensive compared to LNR-T and MG-T. It is still a tiny company that is making a turnaround.

Move to Linamar (LNR-T) or Magna (MG-T)? A great question, because these 2 are trading at rock bottom multiples. This is a reflection of the North American auto market being at a deflection point. It has more than fully recovered since the recession, and now we are starting to see some potential declines in US auto sales. The market is reassessing their growth potential for these stocks. Thinks that these will remain quite volatile in the near term. He would avoid the sector at this point.

What he likes is that the auto sector is pricing in the next recession. People are assuming the auto industry is going into a big downturn. This is trading at a ridiculously low valuation at 3X operating cash flow and 7X forward earnings. They are hitting their numbers and the earnings are growing. This is the best aluminum play out there in terms of the lighter vehicle move. Good European exposure. Recently added a lot of new programs and plant facilities and are now seeing the benefits of that. Dividend yield of 1.35%.

(Market Call Minute.) The sector is not going to roll over, but Magna (MG-T) is a better company. (See Top Picks.)

He sold a month ago. Sentiment got bad regarding the peak of auto sales and Tesla as a competitor. He would hold on to it. It is slow growth. If they bring down costs then there is margin expansion. He plans to revisit it in a couple of months.

Very good management. Strong numbers. They’ve been growing. Have put some new platforms in place in the US. Did a hostile acquisition. Very strong European growth. They are more levered to the use of aluminum parts in automobiles than any other manufacturer, which will be a growing area in autos. Trading at about 7X earnings and 3X operating cash flow. Dividend yield of 1.37%.

(Market Call Minute) He does not like the original products manufacturers. He prefers the secondary market.

Has strong season tendencies when investors are buying cars. End of Jan until early May of each year is the best period to own. Recently it broke a support level and established a downward trend. Look for better opportunities elsewhere.

(Market Call Minute.) At this price, you can Buy it, but be prepared to see it move lower.

The auto parts companies have really gotten hammered lately. Thinks some investors feel it is the end of the growth cycle. This was the weaker of the 3. Had some production problems in ramping up new plants over the years, but thinks that is behind them now. Prefers Linamar (LNR-T) which is the cheapest one for the growth going forward.

The whole group has pulled back on worries that we are peaking on the auto cycle. This is down to 6X earnings and generates really good cash flow. Has some plants in Europe.

(Market Call Minute.) Has been frustrating because its valuation has been really cheap, along with Magna (MG-T) and Linamar (LNR-T). However, price momentum has been terrible. He would want to see the chart turn back up, and would prefer one of the other 2.

(Top Pick Jul 7/15, Down 34.48%) The sector is right out of favour. It was cheap and now is cheaper. It may be a value trap, but he has just added more. Good exposure in Europe.