LINAMAR CORP. $9.00 (Toronto symbol LNR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 67.1 million; Market cap: $603.9 million; SI Rating: Extra risk) is Canada’s second-largest maker of automobile parts after Magna International Inc. It specializes in precision-machined components, assemblies and systems for the North American and European car and truck markets.
The stock has dropped from $17 in June, mainly due to slowing North American car and truck sales. That has hurt demand for its transmissions and other auto parts, which provide about 85% of its sales.
However, the company’s recent expansion in China and Europe helps cut its exposure to the North American auto industry. For example, Linamar recently paid an undisclosed sum for a plant in Wales. This is the company’s 38th plant, and first in the UK.
Linamar has also diversified into non-automotive operations. It owns Skyjack, which makes self-propelled, scissor-type elevating work platforms. The company is also applying its design and manufacturing expertise to other products, such as lawnmowers, drilling equipment and wind turbines.
In the three months ended June 30, 2008, Linamar’s earnings grew just 2.1%, to $32.0 million from $31.3 million a year earlier. Earnings per share rose 6.7%, to $0.48 from $0.45, on fewer shares outstanding. Sales rose 0.2%, to $625.4 million from $624.4 million.
Linamar’s strong balance will continue to shield it from the cyclical swings of the auto industry. Long-term debt of $326.6 million is less than one year’s cash flow. It also has cash of $66.9 million ($1.00 a share). The stock now trades at 6.8 times its projected 2008 earnings of $1.33 a share. The $0.24 dividend yields 2.7%.
Linamar is a buy.
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