There is an excellent write-up about Linamar (LNR) at Canadian Value Stocks. It's also been mentioned recently on Financial Uproar. We won't re-hash their points but we will say what we like about it.
It's down 40 percent over the last year. Compared to auto-parts peers Magna (down 16 percent) and Exco (down 9 percent), that is quite a lot. Here at OSCVS, we like beat up companies the best.
It has high insider ownership at 31 percent (Exco has 27, Magna around 1). Insiders have been buying at a frenzied pace lately, especially over the last three months while the stock has been in the $45 range.
LNR has aggressively grown earnings every year since 2009.
LNR pays a dividend (good) with a low payout ratio (also good). At OSCVS we are not dividend nerds but we do prefer companies that pay dividends because it generally signals more stable revenues versus those that don't.
LNR has the worst balance sheet of the auto-parts triumvirate.
There could be a recession around the corner.
Like other value investors, there's something about auto parts companies that just doesn't sit well with us. Perhaps it is our general fear of being in or even near automobiles speaking here, but we wouldn't invest our last dollar in the sector. Perhaps it is Elon Musk's new moustache striking fear in us. This isn't our last dollar though and we are interested in making money, not waxing philosophic about our personal likes and dislikes. So who cares what we think about auto parts, really.
Here at OSCVS we are bullish on LNR, but we do not necessarily want to own it. Selling puts allows us to express our bullish sentiment without necessarily locking in for the long term. If we are assigned, we will fire up our call writing apparatus and sell contracts until assigned.
We are short 2 JUL 40 puts.