In the extremely competitive U.S. automotive business, choosing an investment is particularly hard, especially after the experience of the last economic crisis. In this article, we will look at two established giants and one best-in-class newcomer, Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), and Tesla Motors Inc (NASDAQ:TSLA), that provide pretty interesting investment prospects as the world economy recovers and emerging countries increase their vehicle demand.
Ford has been growing steadily
After announcing unsatisfactory first-quarter results, Ford Motor Company (NYSE:F) witnessed a decline in its stock price. As a consequence, Deutsche Bank analyst Rod Lache downgraded Ford from buy to hold. Lache stated that the firm “has potential upside from improving losses in Europe and a pickup truck recovery, but pricing may become tougher in certain segments and we caution that Ford may face the same dynamic of lowering expectations that we’ve recently seen play out for GM (we believe Ford Motor Company (NYSE:F) faces the same headwinds that led to it’s guide being below consensus).”
Regardless of the aforementioned position, Goldman Sachs updated their rating from buy to conviction buy, principally encouraged by the company’s growth prospects in Europe, Asia, and Latin America. Several reasons that lead them to believe that this company will perform positively will be listed below.
After the crisis, competing firm General Motors needed to be bailed out by the U.S. federal government. Nevertheless, Ford recovered on its own and is bound to continue to grow as it plans to set in motion a plan to boost profit in Europe that is very similar to the one used for the recuperation in the U.S. — closing plants, reducing unnecessary white collar staff, introducing new models, and implementing aggressive marketing campaigns. The European market is expected to drive Ford´s growth, adding $2 billion (about 25% of Ford Motor Company (NYSE:F)´s 2012 pre-tax earnings) to its bottom line in just two or three years.
Alongside progress in Europe, China, the world´s largest vehicle market, provides further development prospects as Ford establishes in Asia, capturing important portions of General Motors´ and Volkswagen´s market share in the region. Analysts estimate that another $2 billion could be added to Ford’s profit by the Chinese market by 2015.
As stated by John Rosevear of The Motley Fool, even “if Ford does nothing else but end its losses in Europe (which will probably total $2 billion this year) and hold its ground everywhere else, we could be looking at a nearly 50% increase in Ford’s pre-tax profits by the end of 2015.”
An auto leader
Although General Motors Company (NYSE:GM) needed a federal government bailout after the last economic crisis in the U.S., several signs of a turnaround cannot be dismissed. In fact, when announcing their Ford Motor Company (NYSE:F) downgrade, a Deutsche Bank analyst said that they would recommend buying GM over Ford Motor Company (NYSE:F). Although the company is not yet consistently profitable, some upside is possible.
China provides compelling growth opportunities as General Motors Company (NYSE:GM) continues to penetrate a market with plenty of room for improvement, since only 8.5% of the people own cars. While establishing the Buick and Cadillac brands in the country, General Motors Company (NYSE:GM) is close to finishing the construction of two assembly plants projected to begin operations in 2014. The Shanghai SAIC Motor joint venture offers additional development opportunities for the company.
Currently trading at a P/E of just 9.9, General Motors could be seen as a value stock, mainly given the fact that one of its main global competitors, Toyota, trades at 18.96 times earnings despite having delivered very little growth and no dividends whatsoever over the past year. The opposite is General Motors Company (NYSE:GM)’ case, which has delivered constant revenue growth (almost 50% in revenue CAGR) between 2009 and 2012, thus making its way into David Tepper’s top ten picks.