We recently compiled a list of the 10 Oversold Large Cap Stocks To Buy Now. In this article, we are going to take a look at where Magna International Inc. (NYSE:MGA) stands against the other oversold large cap stocks.
The Fed recently reduced the funds rate by 50 basis points, a decision seen as daring by some analysts, though it has been largely embraced by the market and many experts. The market seems to be on an upward trajectory since the day of rate cuts as the S&P gained over 4.3% on October 14 and closed at another all-time high.
While there are some concerns, experts are quite optimistic that they won’t be of much significance as we discussed in our article about best-performing long-term stocks in 2024. Here is an excerpt from the article:
“Dominic Chu of CNBC expressed concerns about potential market overconfidence, given the calmness amid geopolitical risks, the upcoming U.S. presidential election, and consumer spending challenges. [Gunjan] Banerji acknowledged these risks but emphasized that much of the market’s optimism is tied to the Fed’s actions, with people reassured by the larger-than-expected rate cut.
Finally, Banerji pointed out a broadening of the market rally beyond the tech sector and mentioned the strong performances in sectors like energy and materials, and record highs from companies like Caterpillar and McDonald’s, which indicates a healthier, more diverse market rally.”
The Path Forward for Equities and AI
Noah Blackstein, Senior Portfolio Manager at Dynamic Funds recently joined CNBC’s ‘Squawk Box’ and showed optimism around the equity markets. He suggested that current highs may continue. He expects the Fed will implement two more rate cuts this year, which would help sustain market momentum. Despite some geopolitical uncertainties and election concerns, the broader expectation in the market since July, along with favorable banking and credit indicators, supports his positive outlook.
Blackstein believes the labor market’s strength may be overstated and noted that revisions to employment data are likely due to a low participation rate in recent surveys. He also argued that real interest rates are historically high and tight, which further suggests the need for more cuts.
Regarding the economy, Blackstein expects further rate reductions to avoid potential market volatility, especially in light of recent hurricane impacts on employment and retail sales. He highlighted that while real interest rates may seem moderate when compared to the last 20 years, they are still elevated in historical terms.
As the Fed steers the economy away from a potential recession, Blackstein views the next phase as an opportunity for long-term growth, especially in areas like family housing and AI. He believes AI will drive a productivity revolution and integrate data strategies into several sectors, which will ultimately lead to cost savings and revenue growth for corporations.
Our Methodology
To list 10 oversold large-cap stocks, we used a Finviz screener to extract stocks that have fallen significantly on a YTD basis and have a forward P/E ratio between 5x to 15x. After getting a list of 20 stocks, we narrowed it to the most widely held by institutional investors. Finally, the stocks were ranked in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s Q2 database of 912 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An assembly line of light trucks in a state-of-the-art manufacturing plant.
Magna International Inc. (NYSE:MGA)
Market Cap: $12.15 billion
FWD PE Ratio: 7.72
YTD Share Price Decline: ~29%
Number of Hedge Fund Holders: 16
Magna International Inc. (NYSE:MGA) is a mobility technology company that operates 345 manufacturing assembly sites and 105 product development, engineering, and sales centers in 28 countries.
It offers vehicle engineering and manufacturing services, including capabilities in body, chassis, seating, powertrain, and more. It is also expanding into areas like battery management and micromobility. The company is organized into four segments: Body Exteriors & Structures, Seating Systems, Power & Vision, and Complete Vehicles, which guide internal reporting and strategic decision-making.
According to Magna’s (NYSE:MGA) management, it is focused on margin improvement, capital discipline, and strong free cash flow. Operational improvements are expected to contribute to margin growth in 2024 and 2025. The company reduced its gross engineering spending for 2024 by $90 million and lowered its capital expenditure forecast by $200 million.
For 2026, sales are expected to range between $44 billion and $46.5 billion, which reflects market shifts, including delays in EV programs. Despite challenges, the company continues to improve margins and increase free cash flow. The company expects its free cash flow to grow annually, reaching between $1.8 billion and $2.1 billion by 2026, which is over $1.6 billion higher than in 2023.
Additionally, Magna’s (NYSE:MGA) shareholder returns are also quite attractive. The company has been raising its dividend for several years and has a yield of nearly 4.5% compared to its 1.89% sector average. The company’s forward payout ratio is 31.28%. With a high yield and healthy payout ratio, the company is retaining more earnings for growth, while returning a significant sum to shareholders at the same time.
Overall MGA ranks 10th on our list of the oversold large cap stocks to buy. While we acknowledge the potential of MGA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MGA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.