The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Corvette or Mustang? Silverado or F150? Cadillac or Lincoln?
Auto enthusiasts can debate whether GM or Ford makes better vehicles forever.
Both companies reported their second-quarter results Thursday morning.
GM drove its Chevy to the levee, and the levee was dry. And by levee, I mean profits. The quarter was weighed down by $1.2 billion in costs tied to its massive recall problems. Earnings missed forecasts and shares fell more than 3% as a result.
Meanwhile, Ford investors could bust out in a celebratory rendition of Mustang Sally. (Ride, Sally, ride!) Profits and sales topped forecasts and the company also notched its first profit in Europe since 2011. The stock rose slightly on the news.
So what should investors do now? Stick with the proven winner that is Ford or bottom-fish with GM?
There are some compelling reasons why GM may look more attractive than Ford.
The stock is cheaper. GM is trading at less than 8 times 2015 earnings forecasts compared to Ford's price-to-earnings-ratio of more than 9.
Warren Buffett is a fan. Buffett's Berkshire Hathaway (BRKB) owns 30 million shares of GM. (Although that is down from 40 million shares at the end of 2013.)
And the Oracle of Omaha recently had his daughter buy him a new Caddy from a Nebraska dealer. Buffett then wrote an effusive letter of praise to GM CEO Mary Barra about the dealer.
The worst of the recall woes may be over. Speaking of Barra, it is worth noting that she seems to be doing a solid job of steering GM through the recall crisis.
And even though earnings for the quarter were disappointing, sales were still up from a year ago.
That's a good sign for the company. It means that despite all the negative press, consumers are still buying GM cars and trucks.
Management change at Ford raises questions. Ford has a new CEO. The widely respected Alan Mulally has retired. Will Mark Fields continue to keep the company on track? It's a legitimate question for investors.
But here's why I think Ford is still going to be a better stock for the long haul.
Fields has been with the company since 1989. This should be a seamless transition.
And on the off-chance that Ford faces a big recall nightmare of its own, wouldn't it be better to have someone fully equipped to deal with the problem? I think one reason why GM isn't in worse shape now is because Barra is a GM lifer and knows the company inside and out.
Ford is still the more respected name with Wall Street. Ford didn't need a bailout/bankruptcy like GM and Chrysler did.
To some, GM will ALWAYS be tarred with the unfortunate nickname of Government Motors. Nobody jokes about Ford's F ticker symbol standing for Federal.
Ford's sales should grow faster than GM's. The slight premium that Ford shares have over GM seem worth it when you look at the growth potential for the two companies.
Ford's sales are expected to increase by 7% in 2015 and 5% in 2016. Analysts expect GM's revenue to rise just 3% next year and 2% in 2016.
I love the 80s. Ford is really firing on all cylinders. Sterne Agee analyst Michael Ward noted in a report Thursday morning that the company's pre-tax profit margins in North America were the highest since the second quarter of 1987. He thinks the stock could hit $20. That's 12% higher than the current price.
So Ford still looks to be the best of Detroit's Big Three from an investment standpoint. You can buy Chrysler via the very thinly traded U.S. shares of Fiat (FIATY) or invest in the local shares trading in Italy. For what it's worth, they're actually cheaper than GM and Ford, trading at 7 times 2015 profit forecasts.
Then again, the cream of the U.S. auto market might be Tesla (TSLA) -- especially if you think Elon Musk is the 2014 version of Henry Ford as opposed to Preston Tucker. Tesla's growing more rapidly than everyone. Of course, the stock is also insanely expensive.
But that's a column for another day. Next Tuesday in fact, barring other big breaking news. Tesla reports its second-quarter results on Thursday July 31. So a preview early next week will be timely.
Tech editor David Goldman and I joked that CEO Mark Zuckerberg was guilty of selling the company short by merely referring to the results as "a good quarter" in the earnings release. That prompted these tweets from a former CNNMoney investing writer.
Alas, the Wall Street Journal is owned by that other Murdoch company: News Corp. (NWSA). So even if my parent company Time Warner (TWX) succumbs to the urge to merge with Fox (FOXA), then we would not be reunited. (And it feels so good.) Of course, there's that whole issue of Fox probably needing to sell CNN too.
It's all so confusing. You should just check out this segment about it from The Daily Show with Jon Stewart .... that features me! (Erin Burnett and Brian Stelter are on too. As is former CNNer Ali Velshi.) The Time Warner segment starts at about 5 minutes and 20 seconds and I'm on at about the 6:45 mark! Thanks, Comedy Central!
The market has not been kind to General Motors.
Its stock is down about 15% in 2014 as the automaker has contended with seven million recalls and questions from victims' families and government officials about why it took 10 years to recall millions of cars with faulty ignition switches.
Still, General Motors (GM) has roared back since the days of its bankruptcy and government bailout. The stock went on a tear last year and is still up roughly 25% over MOREJesse Solomon - Apr 1, 2014 2:17 PM ET
This article was published in the September issue of Money magazine.
While car manufacturers in June reported their strongest monthly sales in nearly six years, the industry hasn't fully recovered. Analysts forecast that vehicle sales in the U.S. should reach 16 million by 2014, which is still below the pre-financial-crisis highs of more than 17 million.
Since the dark days, though -- when sales dipped to 10 million in 2009 -- car companies have MOREPaul R. La Monica - Aug 28, 2013 9:25 AM ET
This article was published in the June issue of Money magazine.
By Paul R. La Monica
Insider buying doesn't get as much attention as selling, but it can point you to good values.
With the S&P 500 near record highs, you're seeing a surge of insider selling. Normally the dollar value of selling tops buying by 8.5 to 1, according to TrimTabs Investment Research. In the first quarter, the ratio reached 10.5 to MOREMay 29, 2013 10:40 AM ET
Ford and GM rallied Wednesday after both automakers topped third-quarter earnings forecasts, despite soaring losses in Europe.
Shares of Ford (F) climbed more than 5%, as the company's record profit of $2.3 billion in North America helped offset its $468 million loss in Europe, bringing losses in Europe so far this year to just over $1 billion.
Meanwhile, General Motors (GM), the largest U.S. automaker, reported a third-quarter profit that trounced analysts' estimates. Though MOREHibah Yousuf - Oct 31, 2012 1:12 PM ET
Stocks were flat Wednesday morning and one reason was the disappointing retail sales report for May. (Traders may have also been transfixed by JPMorgan Chase (JPM) CEO Jamie Dimon on Capitol Hill.) But if you dig behind the scary headline numbers, i.e. that sales were down for a second-straight month, you'd notice two key (and related) things. Gas prices are lower and auto sales are up.
The sharp decline in gas MOREPaul R. La Monica - Jun 13, 2012 1:15 PM ET
#StupidStock move of the day! $F deserves to be up because of Moody's upgrade. But $GM riding coattails on day like today? Seems odd to me.— Paul R. La Monica (@LaMonicaBuzz) May 23, 2012
Stocks are plunging today because of worries about Europe and the global economy. You wouldn't think that would be great news for car companies, arguably one of the most economically sensitive businesses out there. Yet, shares of MOREPaul R. La Monica - May 23, 2012 2:09 PM ET
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