Auto parts makers just roaring along

$1.1 billion of assets under management, including shares of Magna. He likes its “astoundingly clean” balance sheet and global diversification, which help insulate it from consumer vagaries.

Warnings have been growing that the auto-sales cycle has plateaued and may be turning downwards, particularly in the U.S. where 2017 sales are expected to decline from last year’s record level. General Motors Co. posted a 15-per-cent drop in July sales on Tuesday, the worst in more than a year. Ford Motor Co. reported its biggest sales decline since October and Fiat Chrysler Automobiles NV had its second-worst tumble this year.

Add to this the looming renegotiation of the North American Free Trade Agreement, which President Donald Trump has vowed to tilt more in the U.S.’s favour, and a Canadian dollar that’s jumped nearly 10 per cent since May — making exports less competitive — and it seems like a perfect storm for Canada’s auto suppliers.

Martin Roberge, North American portfolio strategist at Canaccord Genuity Group Inc., called auto suppliers “classic value traps,” in a note.

But David Tyerman, transportation and industrial products analyst at Cormark Securities Inc., is unfazed.

“It might surprise people that these stocks have been really good investments,” he said. He points out that U.S. vehicle affordability is at record highs, while ownership rates and sales per capita are below the peaks of previous cycles. Canada’s autoparts stocks can do well even when the industry is flat or slightly negative because of strong backlogs, he said.

“Magna looks particularly interesting because its growth is accelerating right now,” said Tyerman, who rates the stock a top pick.

In contrast to the U.S., Canadian auto sales surged to a record for July and the country is on track to report a fifth consecutive annual high.

European auto sales, meanwhile, have improved for three consecutive years, hitting a nine-year high in 2016, but demand is expected to wane in the back half of 2017.

As for renegotiating NAFTA, Martinrea’s chairman doesn’t expect major changes.

“We are the postcard for NAFTA. We’re a very interrelated industry, we’re very efficient, we make a lot of money,” Rob Wildeboer said in a recent interview. “I’m pretty comfortable that we’re going to get it right on the auto side.”