Thursday, November 11, 2010

Magna International Inc

Magna (TSX-MG) is a stock I track. I have always liked Frank Stronach, the entrepreneur who ran this company. I held this company between September 2002 and September 2006 and earned 5% return per year including dividends. There were some rumors that it might be bought out in 2006, so I sold. Also, manufacturing firms are fairly risky and it is not the sort of company I usually buy.

The other thing is that the company reports in US$ and has heavy exposure to the US. For Canadians, we have not done well in US investments over the past while because of the strengthening of our currency. However, this company has not done well for any investors over the past 10 years. The US$ figures are better than the CDN$ figures, but even the US$ figures are nothing to write home about. Since the stock price is currently on a tear, investment in this stock would have given you a modest return to date in CDN$ Terms and perhaps not a bad return in US$ terms.

A problem for Canadian investors is that the dividends were paid in US$, so the dividends payments would fluctuate. In US$ terms, the dividends mostly went up until 2007 and have since that time fluctuated. However, the yield on this stock has never been great. Even with the current increase in dividends, the current yield is about 1.2%. This is not the worst I have seen, but it is not the best. I prefer stock that has an average yield at 2% to 2.5% at a minimum. This stock has 5 year average yield of just 1.7%.

For revenue, they seem to be on target to have a nice increase this year, but the 10 year increase will be less than 10% per year in US$ terms and even lower in CDN$ terms. Cash flow is expected to have a good increase in 2010 over 2009. However, there will still probably not be any growth in cash flow over the past 5 years and perhaps modest growth over the past 10 years. However, this is just looking at estimates. Analysts’ estimates are often off the mark.

Even when you look at book value, either in US$ or CDN$, there is no 5 or 10 year growth. Total book value has grown a bit, but when you look at Book Value per share this is not the case. There has been an increase in shares outstanding (almost an average of 4% increase per year). The increase in shares negates any growth in book value per share. The book value per share has also gone down slightly in 2010. The Return on Equity was not bad on this stock until 2008 when ROE turned negative. However, for the first part of 2010, the ROE comes in at 13.9% and this is not bad.

This review does not paint a pretty picture of this stock. However, tomorrow, I will look at what analysts’ are saying about investing in this stock. I think an investment in this stock would be for growth in stock price rather than for income.

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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