Forget Tesla! Magna Stock Is the Way to Play the EV Space

Tesla’s (NASDAQ:TSLA) growth potential is well known. Magna’s (TSX:MG)(NYSE:MGA) is considered less often, despite its top-notch upside.

| More on:

The astronomical rise of Tesla’s stock price of late has enticed many investors into the electric vehicle (EV) space.

Of course, buying EV auto makers is one way to play this sector’s growth potential. As with other secular trends, I often prefer a “picks-and-shovels” approach to investing, rather than buying direct claims. In other words, finding the suppliers that support the companies directly impacted by strong secular tailwinds can be a safer (and potentially better) way to get more impressive risk-adjusted returns over time.

In this context, I’m going to discuss why Magna International (TSX:MG)(NYSE:MGA) is a sneaky way to play this aggressive secular growth sector.

Magna’s business model a gem

Magna produces essential vehicle components. That’s a relatively simple business to understand. Whether it’s for an internal combustion engine (ICE) or an EV, it doesn’t matter. In fact, Magna has been making investments focused on providing a larger percentage of components to electric vehicles moving forward.

Indeed, it seems the growth potential in the mass-produced EV market gives investors in Magna stock right now a lot to like about this large-cap company’s growth potential. I think a lot of optimism about growth in the auto sector stemming from rising EV adoption is factored into Magna’s stock price now. That said, I think this stock has lots of room to run higher, as I don’t think the market has fully captured the growth potential with suppliers like Magna as of yet.

Fundamentals solid

Additionally, the fundamentals of Magna are far superior to those of Tesla, in my view. Magna is an established business with attractive valuation metrics right now. The company is trading at roughly 10 times operating cash flow and roughly 63 times trailing earnings. These metrics might not seem cheap at first glance. However, when one considers the aforementioned growth potential of the EV market, this company looks dirt cheap compared to the EV makers right now.

I think Magna’s dividend yield of 2.2% is substantial enough to entice income investors to the party. Additionally, I think there’s a ton of potential for dividend growth over time, as Magna works on capturing more of the EV supply chain. Magna is already one of the largest auto part manufacturers and suppliers globally. If Magna is able to corner the market on specific components, I think there’s a tremendous amount of room for multiple expansion to coincide with impressive earnings growth long term. Such factors would improve Magna’s fundamentals further and could take this stock price on a very nice ride in the years to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. David Gardner owns shares of Tesla. Tom Gardner owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool recommends Magna Int’l.

More on Tech Stocks

stocks climbing green bull market
Tech Stocks

Why Propel Stock Keeps Going Up

Propel stock has seen a fivefold increase in its market cap in the last year! But even more is set…

Read more »

a-developer-typing-lines-of-ai-code-while-viewing-multiple-computer-monitors
Tech Stocks

Could Constellation Software Become the Next Berkshire Hathaway?

Constellation Software's (TSX:CSU) capital-allocation strategy is similar to that of Berkshire Hathaway (NYSE:BRK.B).

Read more »

cloud computing
Tech Stocks

3 No-Brainer Tech Stocks to Buy With $1,000 Right Now

These three Canadian tech stocks could be among the best growth opportunities in the market right now.

Read more »

happy woman throws cash
Tech Stocks

3 Growth Stocks That Could Be Long-Term Wealth Creators

These three growth stocks aim to grow their financials at a higher rate than the industry average, thus delivering superior…

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is POET Technologies a Top AI Stock for Canadian Investors?

Canada has relatively few AI stocks, and the ones it has are different from American AI stocks in terms of…

Read more »

Rocket lift off through the clouds
Tech Stocks

2 Growth Stocks That Could Skyrocket in 2025 and Beyond

Wondering what types of stocks could rapidly rise in 2025? Check out these two stocks with substantial upside if they…

Read more »

up arrow on wooden blocks
Tech Stocks

The 3 Smartest Tech Stocks to Buy With $500 Right Now

Tech stocks can be seen as a bit risky, but these three have far less risk and more stability for…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Tech Stocks

Shopify: A Must-Have Growth Stock for Your TFSA Now (and the Next 10 Years)

Shopify (TSX:SHOP) stock isn't just a top growth company, it's a titan worth owning in your decades-long TFSA fund.

Read more »