Ford Motor Company (F), General Motors Company (GM): It’s Time to Buy America’s “Big 3”

Indirect exposure

It’s actually impossible to invest in Chrysler directly, but investors can still invest in the company indirectly: through Italian automaker Fiat (ADR) (NASDAQOTH:FIATY) or German automaker Daimler (NASDAQOTH:DDAIF), both part-owners of Chrysler (along with private company Chrysler Group). The company reported its best month since 2007 last May, when vehicle sales grew 11% to 166,596 units—this after an impressive 2012 that saw operating profit grow 47% to $2.9 billion.

The company seems prepared to sustain earnings well into the future, which bodes well for both Fiat and Daimler AG. Fiat already trades at a value equal to its current cash flows. In other words, the stock price is equivalent to the amount of money that the company earns without accounting for appreciation, while the industry on average trades at seven times that cash flow.[1]

Meanwhile, Daimler AG, which owns Mercedes-Benz, operates with a trusted brand that people not only know, but demand, helping the company to approach record numbers in the face of a struggling luxury vehicle environment. The impact of Chrysler’s growth is marginalized, but both companies look like solid buys regardless.

Bear case

As always, a bear case exists. Automakers will be susceptible to global macroeconomic trends, on the one hand, and at least some people believe that the stock market is currently overpriced. This suggests that prices may fall regardless of whether Ford, General Motors Company (NYSE:GM) and Chrysler consistently earn money. However, to the investor that takes a long-term approach, one thing is clear: the stock prices of the Big 3 (or, in Chrysler’s case, the publicly traded companies that are affected by it) do not reflect the real value of those companies.

Bottom line

For many years, Detroit automakers drove Detroit on the idea of supplying America with cars. The Big 3 might never again be “The Big 3,” but that doesn’t mean they can’t reinvent themselves, perhaps as global players in a variety of markets. But regardless of how they earn the money, they certainly seem prepared to do so well into the foreseeable future.

Will Chavey has a position in Ford. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Will 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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