U.S. manufacturing is getting hit by the strong dollar, and U.S. energy is not the best place to look for opportunity at this point either.
But if you turn your gaze northward, Magna International Inc. (USA) (NYSE:MGA) is a shining light that is benefiting from a number of trends.
Canada-based Magna is a 60-year old global automotive supplier, building components for automobiles, from latching and closing systems to seating, to body and chassis engineering to contract manufacturing. Magna International’s operations span five continents and 39 countries.
Global developments are actually breaking in MGA’s favor at this point. For quite a while the Canadian dollar was trading near parity with the U.S. dollar. That meant things made in Canada were priced similar to U.S. prices; and that meant U.S. car manufacturers looked south for equipment and components for their cars to keep costs down.
That wasn’t helping Magna International, but growth in Asia was helping offset any losses in the U.S. But the swoon in Asia had two effects that have set up MGA for a promising 2015 and beyond.
First, as global growth slowed, commodity-based economies — like Canada — saw their currencies weaken. Also, the U.S. dollar strengthened as investors were moving to the safety of the world’s reserve currency.
Then, lo and behold, oil crashed and even more cars were rolling out of dealerships in Canada and the U.S.
The cheap loonie means MGA products are now much more attractive to U.S. car-makers. And U.S. carmakers continue selling cars like hotcakes.
Just as a strong U.S. dollar is bad news for U.S. manufacturers that convert their global sales back into dollars for their financial statements, so its bullish for manufacturers when home currency is relatively cheap.
MGA is in the catbird seat as long as the loonie remains cheap. If the loonie gains on the greenback, MGA will be in trouble — unless Asia or Europe begin to stumble to their feet again. This risk is why MGA rates a B on Portfolio Grader rather than an A.
But it’s going to be a while before Asia and Europe come back to life. For now, the U.S. economy is leading the way and MGA will start booking more business with the Big 3.
And while it’s not the sole reason to buy Magna International stock, it kicks off a 1.6% dividend, which is certainly better than nothing and helps pay for your patience as MGA stock bounces through the markets’ current volatility.
Louis Navellier is the editor of Blue Chip Growth.
