Fisker Stock May Be Tapped out for Now, but Take a Look at Magna

First, let me say that I’m all for investing in Fisker (NYSE:FSR) stock. I believe that founder Henrik Fisker is going to get it right the second time around.

The Fisker logo hangs on display at the November 2011 International Auto Show.
Source: Eric Broder Van Dyke / Shutterstock.com

At the end of April, I argued that speculative investors should buy its stock at around $13. The good news is it’s up 26% since. The bad news is that it continued to fall through mid-May, hitting a low of $9.61 on May 11.

Over the next six weeks, it climbed up to $20.61 before settling back in the mid-to-high teens. There’s no question FSR is a volatile stock. 

If you can’t sleep at night because of this kind of volatility, buying Magna International’s (NYSE:MGA) stock makes so much common sense.

Here’s why. 

FSR Stock Vs. Magna Stock

Since hitting its 52-week and all-time high of $104.28 in early June, Magna’s stock has returned to the pack, losing 20% of its value over the past two months. That’s excellent news if you consider this safer alternative.

When it comes to the auto parts industry and public companies, only Aptiv (NASDAQ:APTV) has a larger market capitalization than Magna’s at $24.9 billion. If Magna were considered an automaker, it would be the world’s 21st largest by market cap.

As investors know, Magna will be producing the Fisker Ocean SUV starting on Nov. 17, 2022. It will be manufacturing the electric vehicle at its carbon-neutral facility in Graz, Austria. The plant’s been responsible for the assembly of 3.7 million vehicles to date, producing more than 30 different models. 

Magna knows how to build large volumes of vehicles. It’s not just a supplier of automotive parts. It’s a manufacturer too. 

On July 28, Magna and LG Electronics signed an agreement to create a joint venture between the two companies. Based in South Korea, the new company, LG Magna e-Powertrain, brings together each company’s strengths to accelerate the development of e-drive systems.

“The market for e-motors, inverters and electric drive systems is expected to have significant growth between now and 2030. Our joint venture company brings together experts from Magna and LG to deliver a world-class portfolio of electric solutions,” said LG e-Powertrain COO Javier Perez.  

These are two substantial companies working together to electrify transportation. Henrik Fisker’s decision to hook his wagon to Magna’s is a brilliant move.

But that said, a lot can still go wrong in the next 16 months, which is why it makes more sense for risk-averse investors to lower the risk by investing in Fisker indirectly through Magna. 

Once Fisker gets to a certain point in its development, then it makes sense to shift some of your committed funds to FSR directly. However, I don’t think you can go wrong holding Magna for the long haul.

Magna’s Latest Acquisition

Magna announced on July 22 that it will acquire Sweden-based Veoneer (NYSE:VNE) for an enterprise value of $3.3 billion. Magna is paying $31.25 per share.

Veoneer will be combined with Magna’s existing ADAS (advanced driver assistance systems) division. The combined ADAS businesses have annual revenue of $1.2 billion. It expects to find $100 million in annual savings by merging the two businesses. 

Despite paying cash for Veoneer, Magna’s adjusted debt to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) will remain inside its target of 1.0x to 1.5x.

Examples of ADAS technology include lane departure warning, forward collision warning, anti-lock brakes, etc. These are things created to make a car or truck safer to drive. It’s also the pathway to autonomously driven vehicles. 

 Veoneer was spun off from Autoliv (NYSE:ALV) in July 2018.

“We expect the combined entity to be an industry leader in active safety solutions, to enhance its position in complete ADAS systems, and to be well-positioned for the transition towards higher levels of autonomy,” said Magna CEO Swamy Kotagiri in its press release. “The acquisition is also consistent with our go-forward strategy to accelerate investment in high-growth areas.”

There is the possibility that other bids will surface. However, should it go through, it’s another smart move by Magna to become a dominant player in the ADAS marketplace. 

The Bottom Line on FSR Stock

Magna generated $449 million in free cash flow (FCF) in Q1 2021, 3% higher than its FCF a year earlier. Its trailing 12-month (TTM) FCF is $2.15 billion. That gives it an FCF yield of 8.6% and an FCF margin of 6.3%. 

While all of its financials took a hit in 2020, it’s about to embark on a major period of growth. Down 20% over the past two months, investors are looking at a much better entry point. 

If you like Fisker but can’t pull the trigger, Magna gets you the next best thing.    

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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