The automotive industry has breathed a collective sigh as trade tensions on the North American continent have steadily dissipated after the tentative United States-Mexico-Canada trade agreement.
However, the USMCA and the elimination of key tariffs may only underpin the auto sector. Companies also suffered from the temporary tariffs, even with the federal government promising rebates to recoup some losses.
Plunging automobile sales and a reduction in overall output make this a risky sector of investors in the early summer. Let’s look at Canada’s two top automotive parts manufacturers.
Magna International (TSX:MG)(NYSE:MGA) is the largest manufacturer of automotive parts in North America. Shares have climbed 5% in 2019 as of close on June 21 and the stock has been somewhat static over a three-month period.
Total sales fell 2% year-over-year to $10.6 billion in the second quarter of 2019. Magna reduced its total sales outlook for the full year and dropped its net income projection.
Linamar (TSX:LNR) stock has also climbed 5% in 2019 so far. The stock has dropped 1% over the past three months. Linamar reported an increase in total sales in its first quarter report. It achieved strong content per vehicle growth in North America and Europe and posted industrial segment sales growth of 17%.
Macro conditions will complicate auto sector growth as we move into the next decade, so growth investors should look elsewhere this summer.
Magna and Linamar offer modest dividends and neither stock is in the kind of value position that warrants a buy right now.
