Ford Motor Company (F), General Motors Company (GM): Could This 50-Year Tariff Be Reason to Sell These Market Leaders?

GM trades at just 0.33 times sales and 8 times next year’s earnings. Ford, with significantly greater growth, trades at 0.48 times sales and a forward P/E ratio under 10. Both trade greatly below the S&P 500 average, in a market-leading U.S. industry. Moreover, both stocks are trading near flat since January 2011, compared to a 36% gain from the S&P 500, which further shows the level of value and underperformance that exists in both stocks.

With that being said, and value being apparent, you might still be concerned with the possible implications of this tariff being eliminated. Because after all, we can’t deny that both GM and Ford have a lot to lose as industry leaders, and Ford has the most to lose.

However, according to a senior analyst, Alec Gutierrez, at Kelley Blue Book, an estimated 70% to 75% of pickup owners are brand-loyal. This means that the majority of buyers stick to their select model, and will not switch easily. Therefore, as long as GM and Ford continue to offer quality fuel-efficient and innovating products, the majority of their sales should stay intact – regardless of the tariff.

Final Thoughts

While I do think that any action with this tariff will be fundamentally minimal, and that either GM or Ford are great companies, I do believe that Ford is slightly better.

Ford is growing faster, its margins are higher, and it pays a dividend of 2.30%. Yes, Ford is slightly more expensive, but neither company is expensive relative to the overall market. Therefore, these minor advantages make Ford a much better investment, in my eyes, moving forward. Thus, I suggest you do your own due diligence following this stock price weakness.

The article Could This 50-Year Tariff Be Reason to Sell These Market Leaders? originally appeared on Fool.com and is written by Brian Nichols.

Brian Nichols owns shares of Ford. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Brian 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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