Friday, November 12, 2010

Magna International Inc 2

Magna (TSX-MG) is a stock I track. I have always liked Frank Stronach, the entrepreneur who ran this company. Now that he has been bought out, it would be interesting to see where this firm will go. I do not really look at this company as a good dividend paying company, so I am not interested in buying this stock.

I guess the first thing to note is that this company will be split 2 for 1 share on the TSX today, November 12th, 2010 and on the NYSE on November 26th, 2010. When I look at Insider Trading, I find that there is far more insider selling at $18.2M than insider buying at $1.1M. The CEO and CFO both have far more options than shares. None of this is any good but it does not tell us much about how insiders feel. The one thing that shows that insider have some faith is the recent increase in dividends, which is an increase of some 66%. However, the dividends are not yet back to what they were in 2006.

When I look at the P/E ratios, I find I get a median high P/E of 16.8 and a median low P/E of 13.9. The current P/E therefore looks good at just 12.2. When looking at the Graham Price, you can see that it is much higher than recently. This is because of the expected increase in earnings for 2010. A good sign is that the current stock price is below the Graham Price by 11.7%. However, please note that both the current P/E ratio and the Graham Price are based on expected earnings for this stock.

When I look at the Price/Book Value, I get a 10 year average of 1.06. The P/B ratio has often been quite low for this stock. The current P/B ratio of 1.43 is about 35% higher than the 10 year average. What you want is to see the current P/B ratio lower than the 10 year average. When the current P/B ratio is 80% of the 10 year average, this shows a good relative stock price. However, on an absolute basis, a P/B ratio of 1.43 is not high; in fact, it is quite good.

The last thing to look at is the dividend yield. At 1.2%, it is quite low. It is also lower than the 5 year average of 1.7%. One way of looking at dividends is to ask what will be my return on my investment in dividends 5 or 10 years out. The problem with this stock is that, even in US$ the dividends have fluctuated and they have no history of annual increases. I would not think that you would buy this stock for dividends.

When I look at what the analysts are recommending, I find lots of Strong Buy and Buy recommendations and a number of Hold recommendations. The consensus recommendation would be a Buy. (See my site for information on analyst ratings.) This stock has risen strongly lately. I notice that the 12 month stock price for Magna is $100, or $50 with the split. Since the price is close to this, I do not see much upside to the stock. Most analysts remark on the recent great growth in earnings.

At this point, I sort of wonder why it is still considered a buy. It is just below the 12 month expected stock price, so there is not much upside as far as capital gains go. I cannot imagine people buying it for its dividends. So, why else would it be considered a buy? I do not know the answer to this.

Magna International is the most diversified global automotive supplier. They design, develop and manufacture technologically advanced automotive systems, assemblies, modules and components, and engineer and assemble complete vehicles, primarily for sale to original equipment manufacturers ("OEMs") of cars and light trucks. Their capabilities include the design, engineering, testing and manufacture of automotive interior systems; seating systems; closure systems; body and chassis systems; vision systems; electronic systems; exterior systems; powertrain systems; roof systems; hybrid and electric vehicles/systems; as well as complete vehicle engineering and assembly. Its web site is here Magna. See my spreadsheet at mg.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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