1 Undervalued TSX Stock Down 12% to Buy and Hold
Written by Amy Legate-Wolfe at The Motley Fool Canada
Investors are always on the lookout for undervalued stocks on the TSX, especially during times of market uncertainty. These are companies that have fallen out of favour in the short term but still offer strong fundamentals, long-term growth, and dependable income. One such stock is Magna International (TSX:MG). It's down roughly 12% over the past year, yet it remains one of the most stable and promising manufacturing names on the Canadian market. For those looking to buy and hold, this could be a smart time to take a closer look.
Magna is a global leader in automotive parts. It supplies components to nearly every major automaker, including systems for powertrains, seating, electronics, and body exteriors. As electric vehicles (EVs) gain more ground, Magna has made the shift to support EV development as well, keeping it aligned with industry trends. Its scale, global reach, and ability to adapt have helped it maintain a solid position even through the ups and downs of the auto market.
In the first quarter of 2025, Magna reported a net income of US$146 million, which marked a strong rebound from earlier quarters impacted by labour disruptions and cost pressures. Revenue came in at US$10.97 billion, up from US$10.67 billion the year before. The dividend stock also raised its sales guidance for the year, reflecting optimism about order flows and production volume in the second half of 2025.
What really makes Magna stand out right now is its valuation. It trades at a forward price-to-earnings (P/E) ratio of about 7.8 and a trailing P/E of 9.1. For context, many TSX-listed industrial stocks trade well above those levels. Investors often look at single-digit P/E ratios as a sign of undervaluation, especially when the underlying business remains profitable and forward-looking. Magna also trades at just 0.85 times book value and under seven times free cash flow, making it one of the more affordable large-cap manufacturing names in Canada.
At the time of writing, the dividend stock trades around $52.66, down from the mid-$60s earlier in the year. That's a decline of nearly 12%, much of it linked to broader concerns about interest rates, supply chain issues, and tariff fears. However, the dividend stock hasn't fallen because of company-specific problems. It's still growing earnings, generating strong cash flow, and maintaining healthy relationships with automakers globally.
Then there's the dividend. Magna currently pays $2.68 per share annually for a yield of just under 5%. The dividend stock increased its dividend for 12 straight years, showing a commitment to shareholders. The current payout ratio is around 47%, leaving room for continued increases if earnings improve. In a volatile market, a reliable dividend goes a long way in providing investors with income and stability while they wait for a rebound. Meanwhile, a $5,000 investment could bring in $251.92 per year!
COMPANY
RECENT PRICE
NUMBER OF SHARES
DIVIDEND
TOTAL PAYOUT
FREQUENCY
TOTAL INVESTMENT
MG
$52.66
94
$2.68
$251.92
Quarterly
$4,951.96
Magna is also financially sound. It produced nearly $5 billion in operating cash flow over the last year and has about $2.15 billion in free cash flow. While it carries about $10.86 billion in debt, it maintains strong coverage ratios and continues to invest in future growth, including technologies supporting electric and autonomous vehicles.
Because it operates globally, Magna is not overly reliant on one market. In fact, 46% of sales come from North America and 43% from Europe. This spread helps smooth out the effects of regional slowdowns or economic hiccups. With production expected to ramp up in the second half of the year and inflation pressures easing, the timing may be right for a longer-term recovery in the auto sector.
In the end, Magna is a dividend stock that checks a lot of boxes. It's undervalued, down about 12% over the past year, and still paying out a strong dividend. It has global reach, reliable earnings, and the kind of financial discipline that gives investors confidence. For anyone looking to buy and hold a TSX stock with both income and growth potential, Magna International might just be the right fit.
The post 1 Undervalued TSX Stock Down 12% to Buy and Hold appeared first on The Motley Fool Canada.
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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Magna International. The Motley Fool has a disclosure policy.
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