It’s truly fairly arduous to discover a high blue-chip inventory in Canada that’s underperforming proper now. The TSX is buying and selling close to all-time highs, and every single day the market appears to need to transfer larger.
For long-term traders, that’s an awesome factor. Nevertheless, for traders in particular shares comparable to Magna Worldwide (TSX:MG), it’s been a bit rougher sledding of late.
Shares of the Canadian industrial large have declined 7% year-to-date, and are literally down greater than 8% over the previous 5 years. In different phrases, this inventory hasn’t achieved a lot for a lot of traders recently.
Let’s dive into why Magna has traded this fashion, and the place the inventory could possibly be headed from right here.
Most up-to-date earnings report leads the best way
Traders are forward-looking creatures, and as such, many could select to keep away from listening too intently to current information on any given inventory.
That mentioned, earnings matter. Magna’s current Q1 earnings report highlighted some travails traders look like internalizing, together with a income drop of 8% year-over-year. This decline was pushed by a drop in gentle car manufacturing, with most of those declines being seen in Europe and North America.
Foreign money headwinds have additionally hit the inventory, which has seen its adjusted earnings per share drop from $1.08 in the identical quarter a yr prior to only $0.78 this previous quarter. That’s not good for these on the lookout for earnings-related causes to purchase the inventory, with many anticipating continued declines because the auto trade unwinds (thanks partly to larger rates of interest all over the world).
Valuation and dividend metrics
From a valuation perspective, there’s actually so much to love about Magna’s 10-times earnings a number of. And with a dividend yield that’s now above 5% (due to a share worth that’s been held comparatively regular for years), there’s an earnings part to this story which may be intriguing to some traders.
That mentioned, the corporate’s ongoing dedication to offering shareholder returns within the type of dividends and share buybacks is probably not sufficient to offset current issues round earnings. Till industrial exercise actually does decide up within the U.S. and Europe, it is a story inventory which may be heading towards a tough chapter.
The place is Magna headed from right here?
Predicting the place any inventory goes to move over any timeframe is extraordinarily tough. Within the case of Magna, my expectation is that this will probably be a quite boring one to look at, not less than from a capital appreciation standpoint.
For these trying to purchase Magna for its yield, I believe there are worse choices on the market. And on the firm’s present valuation a number of, there’s a powerful argument to be made that there’s some undervaluation right here to be explored.
That mentioned, I’m additionally of the view that there are different dividend shares yielding greater than 5% which can be higher bets on this present atmosphere. All of it depends upon one’s particular person investing targets, however that is one I’d suggest doing extra analysis on earlier than leaping in with each toes.
