American Axle & Manufact. Holdings, Inc. (AXL), Dana Holding Corporation (DAN), Magna International Inc. (USA) (MGA): Driving Home Solid Gains in Automotive

And better news follows the good

Magna International Inc. (USA) (NYSE:MGA) is a business I had never heard of until I identified it as a competitor of American Axle, but that changed quickly. Magna International Inc. (USA) (NYSE:MGA) is a supplier of drivetrains and components to major auto manufacturers around the world but can also supply just about any of the components required to build a complete vehicle. It is a major supplier to General Motors Company (NYSE:GM) and their rapidly growing operations in China where the emerging middle and upper classes seem to be developing a love of automobiles similar to what exists in America. They seem to be fond of the GM brand as well.

Growing sales do not always result in growing profits and the automotive industry has had a very tough five years; however, Magna International Inc. (USA) (NYSE:MGA) has come through the tough times with flying colors. The business carries a debt to equity ratio of a measly 0.04% and has grown its income at an annualized pace of 16.67% for the last half decade. Management has also shown their willingness to reward shareholders with a current dividend yield of 1.93% and an annual five-year growth rate of 13.5% on that dividend amount. The current payout ratio of 18% gives management ample room to continue their habit of dividend increases for years to come.

The current P/E ratio of 9.43 times 2014 estimated earnings coupled with the projected 11.3% annual earnings growth rate for the next five years provides investors who act now an exceptional opportunity for steady double-digit gains for at least the next five years as we move through this economic cycle.

Final thoughts and action

As an investor, it is important for me not to marry an idea until the process is done. Investing in a stock simply because that was my original pick is a very poor decision if my analysis reveals it has competitors that offer far better potential. There are times when investors have to be willing to switch horses in mid-stream in order to place their capital into the best available option. Magna International Inc. (USA) (NYSE:MGA) and Dana Holding Corporation (NYSE:DAN) are excellent investment at the current levels; American Axle & Manufact. Holdings, Inc. (NYSE:AXL) needs more time to prove that the current positive signs can take hold.

The article Driving Home Solid Gains in Automotive originally appeared on Fool.com and is written by Ken McGaha.

Ken McGaha has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Ken is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.