This 5-Year Prediction of Magna (TSX:MG) Might Surprise You

Magna International (TSX:MG)(NYSE:MGA) stock has surged 30% in five months. Could it continue to grow? This five-year prediction will tell you. 

| More on:

Whenever you think of investing, you think of the future. But still, many people are investing in the crypto mania, the future of which is in the doldrums. The author of The Intelligent Investor, Benjamin Graham, said, “In the short run the market is a voting machine, but in the long run it is a weighing machine.” Whenever you invest your paper money in something, try to understand where the stock will be five years from now. That is the minimum time a stock needs to give decent returns. I will take you through Magna International’s (TSX:MG)(NYSE:MGA) five-year prediction, analyzing the opportunities and threats.

What is Magna’s growth formula?

Building a car is no one company’s job. It takes a whole supply chain of multiple companies. Magna supplies automotive components to every major original equipment manufacturers (OEMs). However, it only supplies components for lightweight vehicles.

If you look at Magna’s last year fundamentals, its revenue, earnings per share (EPS), and return on equity (ROE) fell. The pandemic significantly impacted Magna. The stay-at-home orders closed factories and disrupted the demand and supply of cars and car components. Global light vehicle production and Magna’s sale both fell 17% in 2020. Despite this, Magna increased dividend per share by 9.5-10%, showing its commitment to shareholders.

Starting this year, Swamy Kotagiri became the CEO, and his strategy is to focus on future growth trends. Under his leadership, Magna is accelerating its move to electric vehicles (EVs). Magna has partnered with several EV makers and OEMs like Fisker, LG Electronics, and Beijing Electric Vehicle.

The year 2021 is also the year of recovery, as the pandemic eases and allows companies to address the pent-up demand. Magna’s first-quarter earnings reported an 18% and 91% year-over-year (YoY) surge in sales and adjusted EBIT. This growth from the pent-up demand is only partial.

The five-year prediction for Magna

The automotive market is facing supply issues because of a global shortage of semiconductors. As I said before, it takes multiple companies to build a car, and semiconductors are key components in EVs. Many auto OEMs have either temporarily shut down facilities or reduced production volumes due to chip shortage. The latest expectation is that chip shortage will ease in 2022.

Once the pandemic and the chip-shortage issue subside, the pent-up demand for EVs could drive Magna sales to unprecedented levels. The company has also right-sized its business that will reduce its cost by US$200 million by 2022, thereby improving profits. Kotagiri noted that Magna has already booked over 90% of its 2023 sales. This shows the company has significant growth coming in the next five years.

To add to the growth, major automotive markets — China, Europe and the United States — have implemented subsidies and policies that support EV adoption. They are also investing in EV charging infrastructure. A Deloitte report expects EV sales to surge 30% annually over the 2030 decade.

On Magna’s EV strategy, Kotagiri said, “The key lies in how you develop a strategy that is modular and scalable. We always looked at it as a marathon: Have the sustenance to stay in the race rather than try to address it as a sprint.” His statement confirms that EV is a long-term marathon that will drive Magna’s sales in the 2030 decade and maybe beyond.

Autonomous vehicles 

While Magna is acting on its EV strategy, its research team is working on the future beyond. It has invested US$100 million in Alphabet’s autonomous vehicles (AV) project Waymo. There are rumours that Waymo is considering public listing. Moreover, Magna is also eyeing a partnership with Apple for the latter’s future AV.

These AV projects could take another few years to materialize and open a whole new world for Magna. I have excluded this from my five-year prediction, as nothing is concrete, and it is too early to monetize AVs. Don’t build your expectation around this growth opportunity, but stay updated on how the AV project progresses.

Magna stock has immense growth potential in the coming decade. It could also double your money in five years. This is a stock to buy and forget.

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.

More on Investing

think thought consider
Tech Stocks

Is CGI Stock a Buy Even With No Dividend Yield?

CGI stock may not have a dividend to speak of. But does that necessarily mean you should ignore this top…

Read more »

A robotic hand interacting with a visual AI touchscreen display.
Tech Stocks

Why Now Is the Time to Invest in Canadian AI Stocks

Are you looking for one of the most solid Canadian AI stocks out there? This one is probably your best…

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

Why AI Stocks Should Be in Every Canadian Investor’s Portfolio

AI stocks continue to be one of the best options out there for long-term investing, especially when considering Canadian options.

Read more »

stock research, analyze data
Bank Stocks

Canadian Bank Stocks: Buy, Sell, or Hold?

There are opportunities and risks on the horizon for the Canadian banks.

Read more »

Young Boy with Jet Pack Dreams of Flying
Stock Market

Is Air Canada Stock a Good Buy After Its Q3 Results

Down almost 60% from all-time highs, Air Canada is an undervalued TSX stock that remains an enticing investment in November…

Read more »

cloud computing
Investing

Where to Invest $10,000 in November

Given their solid underlying businesses and healthy growth prospects, I expect these two defensive stocks to outperform uncertain outlook.

Read more »

coins jump into piggy bank
Retirement

Here’s the Average RRSP Balance at Age 44 for Canadians

Holding stocks like Alimentation Couche-Tard (TSX:ATD) in an RRSP is a good way to build your wealth.

Read more »

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »