Founded in 1966, Linamar Corporation (TSX:LNR). is the second-largest automobile parts manufacturer in Canada. The stock is listed in Toronto and had an exceptionally strong run between 2009 and 2015. In a little over six years, the share price rose from as low as C$2 to as high as C$89.42. That’s 88.4% compounded annually.
Unfortunately for shareholders, the bulls could not keep that momentum any longer. The past four years brought the exact opposite in terms of returns. In October 2019, Linamar stock fell to C$35.33, down 60.5% from its June 2015 top. The chart below puts the last ten years into Elliott Wave perspective.
The company’s weekly price chart reveals a textbook Elliott Wave cycle. The recovery to C$89.42 is a five-wave impulse pattern labeled 1-2-3-4-5. It is followed by an A-B-C zigzag correction down to the 61.8% Fibonacci level. According to the theory, the price can now be expected to move in the direction of the five-wave sequence.
If this count is correct, 2020 is shaping up to be a great year for Linamar investors. Targets above C$90 seem reachable in the long-term. With the stock currently below C$50, the bulls can lift the price by 80% or more in the next couple of years.
On the other hand, Linamar remains a cyclical company. This means that its profits are highly dependent on the state of the world economy. For instance, Linamar swung from a C$109 million profit in 2007 to a C$47 million loss in 2009. As another recession lurks around the corner, investors must proceed with caution even with a promising Elliott Wave pattern in place.