Watch Out: Barbarians At The Gate For Magna International (MGA)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Magna International ( MGA) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Magna International as such a stock due to the following factors:

  • MGA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $64.4 million.
  • MGA has traded 264,844 shares today.
  • MGA traded in a range 227.8% of the normal price range with a price range of $2.40.
  • MGA traded above its daily resistance level (quality: 19 days, meaning that the stock is crossing a resistance level set by the last 19 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on MGA:

Magna International Inc. develops, manufactures, engineers, supplies, and sells automotive products. It operates through North America, Europe, Asia, and Rest of World segments. The stock currently has a dividend yield of 1.7%. MGA has a PE ratio of 11.7. Currently there are 8 analysts that rate Magna International a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for Magna International has been 1.2 million shares per day over the past 30 days. Magna International has a market cap of $20.9 billion and is part of the services sector and wholesale industry. Shares are down 6.3% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Magna International as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, increase in net income, attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • MGA's revenue growth has slightly outpaced the industry average of 4.1%. Since the same quarter one year prior, revenues slightly increased by 2.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • MAGNA INTERNATIONAL INC has improved earnings per share by 20.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, MAGNA INTERNATIONAL INC increased its bottom line by earning $4.36 versus $3.39 in the prior year. This year, the market expects an improvement in earnings ($4.78 versus $4.36).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Auto Components industry. The net income increased by 11.1% when compared to the same quarter one year prior, going from $458.00 million to $509.00 million.
  • MGA's debt-to-equity ratio is very low at 0.12 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.91 is somewhat weak and could be cause for future problems.

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