Ford Motor Company (F), General Motors Company (GM): These Three Stocks All Offer Different Plays on the Recovering Auto Market

I wish I had brought Ford Motor Company (NYSE:F) back when the company first showed up on my radar at $9 per share in 2012. Since then the company’s share price is up about 86% and I believe it still has further to run. Indeed, on simple valuation grounds, Ford Motor Company (NYSE:F) still looks cheap. The company trades at a Trailing Twelve Months Price/Earnings multiple (TTM P/E) of 11.5 compared to its sector average of 14 and a price-to-sales ratio of 0.5 compared to its sector average of 0.6.

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.