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October 4, 2019

Linamar (TSX:LNR) Stock Stumbles Amid Labour Strike

Disclaimer: The writer of this article may have positions in the securities mentioned in this article. The fact they hold positions in securities has had no impact on the production of this article

By Dylan Callaghan

October 4, 2019

It has been a challenging couple of weeks for Linamar Corporation (TSX:LNR), Canada’s second largest automobile parts manufacturer based out of Ontario.

Closing at a 10% dip in share price on Thursday shows some feelings the market has for the stock at this time.

Auto worker strike costing Linamar (TSX:LNR) $1M CAD/day

Restlessness in the US is trickling up to Canada through strikes of roughly 50,000 GM United Auto Workers in the United States. The work stoppage has obviously caused a domino effect for businesses that rely on large scale clients such as GM.

The trickle down effect of large manufacturing companies such as GM is pretty significant and is effecting numerous businesses in the supply chain.

GM is one of Linamar’s top clients and the strike is estimated to be costing Linamar one million dollars per day, now reaching the third week of the strike that began on September 16th.

On the downside, investors can expect a slump in automobile production related companies for the time being while GM and the workers unions hash out a deal. Expect lower sales numbers for GM, and reduced numbers for the companies that are significant players in their business as well, such as Linamar.

Not all grey skies for Linamar

Often a silver lining can be found in any bad situation. As such, while US auto workers fight for better healthcare and wages, the squeeze is put on many Canadian auto parts suppliers. A company like Linamar will also feel the pinch, but could be pulling out their wallet to take advantage of the slump to acquire other suppliers that cannot weather the storm.

Linamar sits at a Forward P/E of 4.66, and PEG is 0.57, and a Price/Book 0.61.

Linamar is undervalued in my opinion, trading at a forward price to earnings of 4.66. The company’s 5 year PEG is only 0.57 and is trading at only 0.61 times book value. There is a ton of room for growth in this stock once strikes and tariffs settle.

With that said, on the upside the question may be where is the entry point for a Linamar investment for non-owners. Could be a good opportunity to jump on board while the company is trading at a discount.

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Dylan Callaghan


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