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Home | Getting Started | Personal Finance | Q & A | Sample Portfolio | Glossary | About Us |
| Date: Tuesday 13th 2008f May 2008 07:05:29 AM | ||||||||||||||||||||||||||||||||||||||||||||||||
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Buying Magna 04/15/2005 | ||||||||||||||||||||||||||||||||||||||||||||||||
| By: Hari Wibowo | ||||||||||||||||||||||||||||||||||||||||||||||||
| Industry background | ||||||||||||||||||||||||||||||||||||||||||||||||
| Magna International Inc. (MGA) is the global supplier of automotive components, suppliers and modules. Magna's customers include auto companies such as General Motor, Ford, Daimler Chrysler, BMW and VW. | ||||||||||||||||||||||||||||||||||||||||||||||||
| Reasons for buying MGA | ||||||||||||||||||||||||||||||||||||||||||||||||
| Currently high commodity and gasoline price is squeezing Magna in two ways. First, troubled customers such as General Motor is demanding lower price to compete with Japanese Automakers. Second, high commodity price makes it difficult for Magna to produce auto components at a lower price. | ||||||||||||||||||||||||||||||||||||||||||||||||
| There is reason for optimism, however. Despite a difficult operating condition, Magna manages to produce profit of $7.20/share in year 2004. I sincerely believe 2005 will be a tougher year for the auto industry. But, analyzing the company, I concluded that the company will be able to wring out profit of $6.10/share in 2005. What's more is that Magna has enough liquidity to survive for at least a year with a current ratio of 1.55. Net cash also stood at $7/share. What this means is that Magna can afford to lose money for years and still not risking itself into bankruptcy. | ||||||||||||||||||||||||||||||||||||||||||||||||
| The wonderful thing about Magna is that it can make money this year! Check out my EPS prediction here. With current earning power, Magna has an estimated fair value of $105/share. High cash balance, low valuation and profitable despite a difficult operating condition. What else not to like about MGA? | ||||||||||||||||||||||||||||||||||||||||||||||||
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On Friday 04/15/ 2005, we bought 31 shares of MGA at an average price of $62.60 with $10 broker commission. As we have said earlier, we would like our sample portfolio of $ 10,000 to contain 5 stocks with the same dollar amount. ($ 2,000 each). Here is the status of our sample portfolio.
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| Conclusion | ||||||||||||||||||||||||||||||||||||||||||||||||
| I will review MGA on a regular basis as needed. In the meantime, I will find other suitable candidates for our sample portfolio. If you have any suggestions, you should talk about it at our discussion boards. | ||||||||||||||||||||||||||||||||||||||||||||||||
| Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding any securities. | ||||||||||||||||||||||||||||||||||||||||||||||||