Investors often seem to view buying car stocks like buying the car itself. They will discuss the relative merits of Ford (F) and GM (GM), for example, and decide which one to buy. After a period of recovery in the US auto industry when F and GM were quite closely correlated, the last few months have seen us go back to a “one or the other” scenario, as the comparative chart shows.
The delayed Chrysler IPO expected early next year will add another element to the game, and no doubt comparison shopping of all three stocks will be common. The fact is, though that, while they are competitors, sales growth and stock gains in the US auto industry are not a zero sum game. We have seen that this year. The turnaround in the fortunes of the big car companies has been remarkable, but 2014 may well see further gains, so why not just spread your investment?
Both have embraced the idea of fuel efficiency, yet retained a presence in the lucrative truck market, so on a big picture, fundamental basis there is a case to be made that domestic growth can continue next year whether US consumer sentiment improves or not. The heavy lifting on increased fuel efficiency, hybrids and electric cars has been done and one would logically expect costs, and therefore prices, to begin to fall, while margins are maintained. Chinese growth may be slowing, but emerging markets as a whole represent a huge potential customer base that is still to be exploited. Given all that and despite significant price appreciation this year (F +25.9% and GM +40.2% YTD) both are trading at forward P/Es of under 9 and still look like value.
Right now a technical analysis of Ford and GM stock would also indicate that for completely different reasons, both stocks are decently positioned for a good 2014.
Ford is approaching the $16 level, which marked the highs back in June, and, as you would expect, has become an area of support since being broken.
When GM breached the IPO level of $33 (gold line) this year I didn’t get too excited, but now that it has held above the immediate post-IPO high around $39.50 (blue line), I expect that level to provide serious support and the way looks clear for further upward momentum.
When a simple technical analysis based on basic support and resistance levels coincides with improving fundamentals, I take notice.
There are other reasons to be positive about the coming year for both companies as well. As reported in this Ward's Auto report, Ford is looking for significant growth in the Asia Pacific region, while GM’s recently announced new CEO Mary Barra, is, as I pointed out a couple of days ago, a GM insider who has embraced and encouraged change.
This overall rosy picture could be clouded somewhat by a number of factors. Recent growth in US car loans has been marked by a rise in “sub-prime” type loans and any further slowing of Chinese growth could make Ford’s focus on the Asia Pacific reason look misplaced. Car sales are hit hard in the event of an economic downturn, so any problems that emerge in the US or Europe could slow the pace of growth, but I keep going back to the fact that both stocks are trading at a significant discount to the overall market. This means that really robust growth isn’t priced in, and temporary setbacks can be ridden out.
On balance, then, the recovery in US auto stocks looks to me to be in midstream and 2014 will provide ample opportunity for both GM and F to continue to outperform the market next year. Depending on pricing, it could be that the Chrysler IPO will also present an opportunity. When you are buying a car, you have to choose. When you are buying car stocks, you can just go ahead and buy them all if you so desire, and that may just be a good idea at these levels.