Daily Stock Pick: August 5th, 2021

Stocks ticked slightly higher this morning after yesterday’s mostly lower session.  Results from ADP’s payroll survey released yesterday indicated a gain of 330,000 jobs for July, falling short of the consensus estimate of 653,000.  Investors will be tuned in tomorrow when the Labor Department releases their official jobless report for July.  Economists expect 845,000 in non-farm payroll to have been added in July.  

Our trade alert for today highlights a company making waves in the EV market in the U.S. and the largest EV market in the world – China.  So if you’re looking to capitalize on rosy EV prospects with a not-so-traditional option, read on.  

Ontario-based auto component producer Magna International Inc. (MGA) is making considerable strides in revving vehicle electrification capabilities.  The company has two newly released advanced electrified propulsion systems with enhanced range, improved drive dynamics, and lower emissions by 38% to demonstrate its EV prowess. 

The company has just seen earnings accelerate for a third straight quarter.  They also raised guidance for the rest of 2021, seeing more robust China sales on the horizon.  But the U.S. remains Magna’s largest market, and there is plenty happening closer to home.

The company is set to benefit as Legacy automakers like Ford (F) and General Motors (GM) are committing to heavy EV spending.  To meet growing demand, Magna says it will invest $70 million over the next five years to construct an EV battery-component plant in Michigan.  Production at the state-of-the-art facility is set to commence in early 2022 with battery enclosures for General Motors’ new GMC Hummer EV.  

Meanwhile, there are whispers in the pipeline that the long-rumored EV from Apple (APPL) may come to life with the help of Magna.  In April, The Korea Times said LG Electronics and Magna were “very near” to signing a deal with Apple to build its initial electric cars.  There hasn’t been confirmation on that, but the prospect is pretty exciting.  

Magna’s share price has lost nearly 9.27% in the past month due to near-term challenges amid supply issues and rising prices for key manufacturing materials.  Current conditions may put pressure on gross margins in the near term.  But these hiccups shouldn’t diminish your faith in the stock.  In fact, this may be an excellent opportunity to buy the dip.

In their upcoming earnings call, scheduled for tomorrow before the bell, Magna will be looking to surpass expectations of $9.28B generated in Q2 and $1.40 EPS.  It’s worth noting that the company has exceeded EPS expectations in the past three consecutive quarters and beat revenue in the past 4. 

Of 16 polled analysts, 13 rate the stock a Buy and 3 say Hold.  There are no Sell ratings for MGA.  The median price target of $113.50 implies a 36.90% increase over the next 12 months.  

Where to invest $1,000 right now...

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And it's not Magna.

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But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.

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