Things were looking very concerning for the auto industry in the U.S. at the onset of the global pandemic. With many of the major automakers closing down their manufacturing plants for a portion of 2020 and auto sales experiencing sharp declines, these stocks faced major selling pressure for the first half of the year. It took a while for auto stocks to start showing signs of life, but now it appears that investors are getting more bullish on the prospects of these companies even though they still have big challenges to face.
For example, Ford (NYSE:F) and General Motors (NYSE:GM) are two classic American auto stocks that have been in steady uptrends to start the year and could be worth a look at this time. The real question is which one of these automakers offers more upside? Let’s take a deeper look at both stocks below.
General Motors is the largest U.S. manufacturer of cars and trucks and a company that accounted for 16.5% of all U.S. new vehicle sales in the year 2019. With a portfolio of iconic brands including names like Chevrolet, Cadillac, GMC, and Buick, General Motors is a company that investors can rely on to manufacture cars that deliver consistent demand. The company recently reported its Q4 earnings that were stronger than expected, including Q4 revenue growth of 22% to $37.5 billion. GM also reported a record Q4 EBT-adjusted of $1 billion.
If you are thinking about the upside for a company like General Motors, there are several things to consider. 2021 could be a great year for GM based on what was stated in the earnings call. The company reinstated its forward guidance for the first time since last spring and expects profits to increase for the year, even with supply-chain disruptions. There’s also the fact that the company is becoming increasingly more cost-efficient and continues to see strong demand in international markets. Finally, the fact that GM is focused on developing Electric Vehicle (EV) offerings and autonomous vehicles makes it a stock worth watching for long-term upside.
Another auto stock that investors should be looking at right now is Ford. As the second-largest U.S. producer of cars and trucks behind General Motors, Ford is a company that should benefit greatly from stronger consumer spending in 2021. With a new round of stimulus payments on deck and low-interest rates for borrowers, Ford could see a lot of upside as the economic effects of the pandemic start to diminish. Ford recently reported a Q4 adjusted net profit of $651 million, which was an increase of 183% year-over-year.
Similar to General Motors, Ford is also getting into the EV game. The company recently announced that it plans to spend $22 billion on electric vehicles and $7 billion on autonomous vehicles through 2025. There is already a lot of buzz surrounding the company’s all-electric vehicle, the Mustang Mach-E, which bodes well for future EV offerings from the company. Another bright spot from the company’s Q4 earnings was the fact that its sales grew by 30.3% year-over-year in China. This marked the third consecutive quarter of year-over-year growth in the region. Finally, investors should be intrigued with the recent deal that Ford made with Alphabet (NASDAQ:GOOGL) to grow the company’s in-vehicle connectivity services. This is a sign that Ford is planning to modernize its fleet and stay at the forefront of technological advances.
Which stock has more upside?
Now that we’ve briefly assessed both General Motors and Ford, it’s time to decide which stock provides more upside. While both of these companies have a lot of positive qualities and could become big players in the EV space, Ford is the option that investors should go with if they are looking for more upside potential. The stock is trading at a 7.89 forward P/E ratio versus a 9.52 forward P/E for GM, which tells us that Ford offers a slightly better value at this time.
There’s also the fact that Ford has a new CEO and is going through a major restructuring that could transform the company as we know it. Combine that with Ford’s consistently strong growth in China and the fact the General Motors continues to deal with weakness in its Cruise segment and Ford could be the stock with more upside. With that said, both companies are good options for investors that want exposure to the auto industry, even though they will be facing issues related to semiconductor shortages in the near-term.Leave a comment