The Misfits: Magna International (MGA)
The automotive parts maker and assembly specialist's recent performance has not lived up to investor expectations. Can it recover?
I say this often, but based on broader finanical media coverage, it bears repeating:
I’ve never really understood the appeal of investing in automakers.
Despite decades of underperformance, plenty of people on the internet insist that General Motors (NYSE: GM) and Ford (NYSE: F) are “great” businesses trading for cheap valuations. While those statements may be factually correct, they don’t necessarily translate to good investor outcomes.
Even on a total return basis with that massive dividend, an investment in Ford in April of 1998 would be worth roughly the same as today. That is the best investor outcome for the three Detroit manufacturers over that time.
My frustration with these automotive investing experts opining on the merits of Ford or GM is they ignore the outstanding businesses on the automotive industry’s periphery: Junkyards, dealerships, used car loan originators, tool suppliers, and aftermarket parts manufacturers (did I mention dealerships already?).
You could also put original equipment manufacturers and contract manufacturing specialists into the same market-beating bucket of automotive stocks for several decades. Over the past few years, though, these companies have gone from consistent outperformers to market also-rans.
I could go in several directions because each OEM manufacturer has unique reasons for its lack of continued strong performance. For now, let’s focus on Magna International (NYSE: MGA). It is one of the world's largest OEM suppliers & contract manufacturers and has more employees than either Ford or General Motors. Can we chalk this period of underperformance up to the cyclical whims of the automotive industry, management missteps, or structural shifts across the industry that means these suppliers won’t likely replicate their former performance?
Let’s dig in.
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