LINAMAR CORP. $18 - Toronto symbol LNR

LINAMAR CORP. $18 (Toronto symbol LNR; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.7 million; Market cap: $1.2 billion; Price-to-sales ratio: 0.7; Dividend yield: 1.3%; SI Rating: Extra Risk) is Canada’s second-largest auto-parts maker after Magna International Inc. Linamar specializes in engines, transmissions and other precision-machined parts for the North American, European and Asian car and truck markets. The company has 37 plants in Canada, the U.S., Mexico, Germany, Hungary, South Korea and China. The stock fell to $2.00 in March 2009. That’s because the recession hurt new-car sales. The bankruptcies of General Motors and Chrysler — both of which are Linamar customers — also added to the company’s uncertainty. In response, Linamar aggressively cut its costs, mostly by laying off workers. That should save it $60 million annually, starting this year. The company is also diversifying into non-automotive products. It now makes parts for lawnmowers, wind turbines and drilling equipment. It also owns Skyjack, which makes self-propelled, scissor-type elevating work platforms. Linamar now gets 10% of its sales from non-automotive products. In 2009, Linamar’s sales fell 25.7%, to $1.7 billion from $2.3 billion in 2008. If you exclude restructuring and other unusual costs, it would have earned $0.02 a share (or a total of $1.1 million). That’s down 98.5% from $1.36 a share (or a total of $90.7 million) in 2008. Linamar is putting the savings from its restructuring toward its debt. In 2009, the company cut its debt by $161.7 million. The remaining $219.4 million of long-term debt is a low 18% of Linamar’s market cap. The company holds cash of $98.0 million, or $1.51 a share. Linamar’s improving outlook has prompted the company to double its dividend. The new annual rate of $0.24 a share yields 1.3%. This is the same rate it paid before the recession. The stock now trades at 22.2 times its projected 2010 earnings of $0.81 a share. That’s a reasonable p/e ratio, particularly because Linamar continues to pick up new contracts following the bankruptcies of some of its competitors. Linamar is a buy.