It's a perennial debate around Detroit: Who's better -- GM or Ford?
This debate has raged on Wall Street in recent weeks, but the real answer might be that both stocks are a pretty good deal.
Shares of General Motors and Ford have fallen more than 12 percent this year, despite big first-quarter profits and the fact that more than half of Wall Street analysts now recommend buying one or both stocks.
Given Ford's turnaround, at least one veteran analyst says the Dearborn automaker is the better buy. Peter Nesvold, with Jeffries & Co., says Ford's upcoming models are better-positioned for high gas prices.
But the GM camp is growing. Of 18 analysts reporting recommendations to Bloomberg in the last three months, 65 percent now have GM listed as a "buy," with 25 percent rating Ford that way. What's more, only 1% of those analysts advise selling GM shares; 19 percent make that recommendation for Ford.
Will Ashworth, a Toronto-based stock analyst for Investopedia.com, also makes a logical case for GM. His rationale: lower debt, equally strong products and executives buying GM shares with their own money. GM CEO Dan Akerson bought 30,000 shares earlier this month for the market price of $31.33 a share, more than doubling his holdings to 50,000 shares.
"Akerson appears to be putting his money where his mouth is," Ashworth said.
It's feeling like old times again.
While new Internet stocks such as LinkedIn soar, brick-and-mortar companies such as Ford and General Motors are having trouble getting a second look from investors, despite improved profits and solid recommendations from across Wall Street to buy.
Ford shares closed at $15 on Friday, roughly 8 1/2 times its earnings per share. GM ended the week at $31.18, about 7 1/2 times its earnings.
In contrast, Toyota, despite earthquake and tsunami woes, is priced at 25 times its earnings. Boeing's stock sells at 17 times, and Caterpillar is priced at 18.6 times its earnings.
Automakers didn't want to discuss their recommendations or stock prices.
"We can't comment on analysts' opinions. All we can do is focus on running a profitable and growing global enterprise," said GM spokesman Jim Cain. Ford did not respond to requests for comment.
But outdated, distrustful perceptions seem to haunt Detroit auto stocks, it seems, despite what many see as a new future for GM, Ford and eventually, Chrysler.
Some on Wall Street are wondering whether Ford's $2.6 billion and GM's $3.2 billion in first-quarter profits are as good as it gets.
"The bottom line is, you don't want to own Ford just because it's cheap," said Morgan Stanley analyst Adam Jonas, who recommends clients buy shares of Ford but not GM. "They've got to keep beating (expectations)."
Hedge funds, whose mission is to buy or sell ahead of the crowd, are convinced the automakers' recovery is just getting started, as the benefits of GM's bankruptcy -- lower costs and much less debt -- are only starting to reveal themselves. Twenty hedge funds owning GM stock bought 15 million more shares between January and April, according to TheStreet.com. Ford's 20 largest hedge shareholders added 6.8 million shares in the same period.
What Each Has to Offer
Ford will earn pretax profit margins of up to 9.6 percent of sales this year and 9 percent next year, Jonas estimates, almost double the 4.8 percent margins it earned in 2010. He also expects Ford to generate about $38 billion in cash through 2015.
The Dearborn automaker has more all-new models coming in crucial market segments in the next 18 months, said Peter Nesvold, an analyst with Jefferies & Co.
GM is shadowed by the government's plan to sell its 500 million remaining shares of the company. The U.S. Department of the Treasury has said that it won't sell until August or later, but knowing that the automaker's largest shareholder is selling will tend to keep the price down, as investors anticipate a big sell-off.
But Will Ashworth, who writes about investing for Investopedia.com, said that "would only make GM more enticing" because the stock would be more affordable as the company's performance improves.
Ashworth said most investors have overlooked that:
-- GM widened its U.S. market share lead over Ford by 1.4 percentage points in April, even as it spent less on sales incentives.
-- GM CEO Dan Akerson's purchase of 30,000 shares earlier this month for $31.33 a share -- the market price -- was a bold show of confidence.
"The average CEO of a Standard & Poor's 500 company received about $11.4 million in total compensation, with 55 percent of that through stock and option awards well below the market price," Ashworth said.
Timing Is Critical
Jefferies' analyst Nesvold said making money on auto stocks requires buying when a manufacturer is early in the cycle of replacing nearly all of its product lineup. Although Ford has recently launched all-new versions of its Explorer, Fiesta and Focus, the product pipeline will remain fresh for another 18 to 24 months.
The jury is still out, however, on Ford's effort to refocus and strengthen its Lincoln brand.
Ford is trying to raise the brand's stature by shrinking the number of Lincoln dealerships, merging some with Ford dealerships, and launching seven new or redesigned models in the next four years.
GM has a new Chevrolet Sonic subcompact coming this summer, and a redesigned Malibu next year. The next generation of its full-size pickups -- the Chevrolet Silverado and GMC Sierra -- will launch in 2013.
"If you're a three-year investor, GM will be in a better part of their product cycle around 2013 and 2014," Nesvold said. "But for the next six to 12 months, the timing favors Ford."
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