The report on Linamar is updated and rated (higher) Buy at $69.13. Over the last three quarters reported Linamar has staged a very strong profit recovery. Yet the stock price showed little reaction and even the gains it made earlier this year have now slipped away. It’s a cyclical business and that will always be a mark against it. The stock market seldom puts a high multiple on a cyclical business. I’m attracted to the fact that it trades at book value while earning a reasonable ROE of around 12% currently and historically higher. And it is very well managed and has credible long-term growth plans.
However, I do note that insiders were selling in 2021 after the stock recovered from brutal lows in 2020.
As a manufacturer, this company will not have the enormous ROEs that some software companies can make. But it should continue to do in excess of 10% ROE over the long term. If so, it will be a good investment at book value.
Linamar has recently reduced its debt level quite dramatically. That leaves it very well positioned to make a large acquisition, to sharply increase the (small) dividend or to do a large share buy-back operation. Any of those three could be a catalyst to drive the share price higher.
I plan to add to my position.