Europe is improving
One of the factors overhanging Ford Motor Company (NYSE:F)’s share price is the company’s European division, which is registering rising losses and falling sales. However, the company recently announced that it sees demand rebounding in the region, leading to a return to break-even by 2015. Indeed, the company’s sales in its 19 main markets in Europe expanded 6.4% in June outpacing an industry-wide decline of 6.5% — boosting Ford Motor Company (NYSE:F)’s overall share on the continent to 8.2%, from 7.2% a year ago. Having said that, due to protests within Europe, concerning the company’s plan to cut jobs, Ford Motor Company (NYSE:F)’s sales have fallen 8.3% in the first six months of 2013.
The U.S. is strong
Still, on the other side of the pond, Ford Motor Company (NYSE:F)’s US sales expanded 13% in June, the best set of June sales results since 2006, beating the results of peer General Motors Company (NYSE:GM), which noted a 6.5% rise in vehicle sales from the same period last year. It is this growth in the US, along with the company’s highly lucrative finance division that attracts me to Ford.
The bank of Ford
Ford’s finance division accounted for 30% of net income during 2012 and this figure is set to expand and more customers make use of low rates to buy autos on finance before interest rates rise. This should continue to provide a high level of consistent cash flow for Ford with a very high profit margin.
It’s not just Ford that is setting a record rate of growth
That said, despite these impressive growth figures, Ford could now be overshadowed by its peer General Motors Company (NYSE:GM), which looks to be moving into value territory. In comparison to Ford, General Motors Company (NYSE:GM) is cheaper on a forward basis, trading at a forward P/E of 8.4 compared to Ford’s 10.2 and cheaper on a price-to-sales basis, trading at a ratio of 0.3 to Ford’s 0.5.
However, valuation is not everything and while General Motors Company (NYSE:GM) does seem cheap, the company is still trailing Ford in productivity and sales growth. Indeed, compared to Ford’s staggering 13% sales growth during June, General Motors Company (NYSE:GM) only saw growth of 6%. Furthermore, Ford is producing a much stronger return on shareholder equity than General Motors Company (NYSE:GM), thanks in part to Ford’s lucrative, low cost financing division.
Bigger could be better
Currently valued at $205 billion, Toyota Motor Corporation (ADR) (NYSE:TM) is bigger than both Ford and General Motors Company (NYSE:GM) combined and the company could be a good looking prospect for risk investors. Like Ford and GM, Toyota Motor Corporation (ADR) (NYSE:TM) noted a 10% uptick in sales for June this year and the company could be set for a huge profit boost following the weakening of the yen which has already spurred analysts to upgrade EPS forecasts for this year by nearly 53%!
These upgrades take the consensus estimate for Toyota Motor Corporation (ADR) (NYSE:TM)’s year-on-year EPS growth up to 237%, which puts the company on a Price/Earnings to Growth (PEG) ratio of 0.8 indicating that the stock could offer growth at a reasonable price.
Foolish summary
All in all there are currently some very good companies trading at very cheap valuations in the auto sector. Ford’s stock still looks like it could move higher as the company returns to profitability in Europe, while sales in the US remain strong and the company’s finance division rakes in the cash.
Having said that, GM looks like it could be approaching value territory and its sales are expanding as well. Toyota Motor Corporation (ADR) (NYSE:TM) is benefiting from the weaker yen and its sales are rapidly expanding.
Overall, all three companies offer opportunities. Ford has growth, GM has value and Toyota Motor Corporation (ADR) (NYSE:TM) offers growth at a reasonable price, three different reasons for investment in three different companies.
The article These Three Stocks All Offer Different Plays on the Recovering Auto Market originally appeared on Fool.com is written by Rupert Hargreaves.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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