General Motors Company (GM) and Ford Motor Company (F) A Good Buying Opportunity; Barron’s
General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) two of the largest American automakers have good prospects going forward, investment firm Barron’s has claimed in a recent bullish note for the two stocks.
GM stock is down nearly 11% this year so far, while Ford Motor’s shares are down almost 9% over the same period. The S&P 500 index – representing the broader market – has so far trickled up 0.8% this year.
On Friday alone, GM shares were trading $3 under the company’s initial public offering price of $33 in November 2010. Ford’s stock, which closed at $12.94 on Friday, has returned almost nothing to investors in three years.
Barron’s notes investors are drawn more towards analysts’ expectations of a soon-to-come dip in monthly auto sales following from what these analysts have dubbed as the top of the US auto industry. Backing those claims are the excess sub-prime auto loans in the industry which these analysts believe could short circuit the auto sales momentum – much like the fate of the housing sector back in 2007 when the financial crisis struck.
Still Barron’s believes both these stocks promise at least 25% upside for patient and bold investors. The firm said investors and analysts are likely erroneously weighing negatives surrounding the auto industry more than the positives.
Beyond the healthy dividend yields that both GM and Ford offer (GM yields 4.9%, Ford yields 6.5%), the firm notes GM is trading at 5.6 times its one year expected earnings, while Ford trades at 6.6 times its projected 2016 earnings. In comparison, the broader market is trading at a much more costly valuation with the average one-year forward price multiple straddled at 17 times. This makes Ford and GM – both already great dividend stocks – cheaper than the market at large.
Barron’s says both Ford and GM are working with a leaner more adaptable cost structure and most of their plants are running three shifts – which reflect a strong desire to cash-in on the surging current auto demand levels in the country. While the sales volumes are indeed projected to dip, Ford and GM see the industry breakeven point well below current levels at around 10 million to 11 million vehicles. Some industry experts are in fact pitching auto sales to stabilize around the healthy 16 million to 17 million marks going forward – thanks in part to new auto demand expectations from the millennial generation.
The investment firm notes Europe has been an improved market place for GM while it’s already profitable now for Ford. China – the world’s largest auto market that has been weighed down recently from poor macro-economic conditions has also not stung GM and Ford as much as some analysts were expecting.
Barron’s says investors are likely over-judging the bad aspects of the two companies’ prospects, and that patient investors could be rewarded with consistent strong financial performance by both, Ford and GM.