Ford Motor Company (F), Toyota Motor Corporation (ADR) (TM): American Muscle vs. Japanese Imports

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The automotive industry has been improving lately due to increasing auto sales. Ford Motor Company (NYSE:F). and General Motors Company (NYSE:GM) were both profitable in the first quarter of 2013, and consequently they have rallied to new 52-week high levels. Japanese giant automakers Honda Motor Co Ltd (ADR) (NYSE:HMC) and Toyota Motor Corporation (ADR) (NYSE:TM) have also seen appreciation in their stock price. While I have no doubt that all four stocks will perform well in the near future, I like to invest in only the best.

American muscle!

Ford ToyotaOn valuation, Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) would seem evenly matched. Their price/earnings ratios are low compared to the automotive industry. Ford trades with a P/E of 10.19 and a forward P/E of 9.08, while General Motors trades with a P/E of 11.52 and a forward P/E of 7.68. The price/earnings-to-growth ratios for the companies are comparable as well, with Ford Motor Company (NYSE:F)’s PEG at 0.97 and General Motors’ PEG at 0.82.

Ford Motor Company (NYSE:F) had an outstanding earnings report for the first quarter of 2013. The Mustang sportscar developer increased its net income to $1.6 billion, or $0.40 per share, which is an increase of $215 million over a year ago. A steep increase in units sold in North America pushed its overall revenues higher as well. However, the total units sold in Europe declined from 372,000 in the first quarter of 2012 to 341,000 in the first quarter 2013. In the end, the company’s guidance remained unchanged for the rest of the year. As Professor Sheldon Cooper would say… Bazinga!!!

General Motors had a modest first quarter in 2013. Its revenue was $36.9 billion, compared to $37.8 billion in the first quarter of 2012. Its net income declined to $0.9 billion, or $0.58 per share, from $1 billion, or $0.60 per share. Even with the strong demand for automobiles, General Motors was not able to take advantage of the situation and the company’s net income shrunk.

Ok, so far we have seen their past performance. But what about the future?

As Dr. Cooper would say… “I am so glad you asked.” The market outlook seems shiny. The domestic market remains strong, and the Asian market is improving as well despite the presence of competing Asian automakers such as Toyota Motor Corporation (ADR) (NYSE:TM), Honda Motor Co Ltd (ADR) (NYSE:HMC), and even Tata Motors Limited (ADR) (NYSE:TTM). It is the European market that may be worrisome, or I should say was worrisome. A report released last Friday on European automotive marketing states that car sales have increased for the first time since 2011 on a monthly basis. This should boost Ford Motor Company (NYSE:F)’s European car sales, and as a result its net revenue should increase. Hence, I sanction that Ford will outperform General Motors.

Japanese car performance

The ballgame is totally different here. Though it seems that Honda and Toyota Motor Corporation (ADR) (NYSE:TM) are doing fine and dandy while bringing capital appreciation to their investors, I believe their outlook may be troublesome.

Honda is trading with a P/E of 20.6 and a forward P/E of 13.32. Toyota Motor Corporation (ADR) (NYSE:TM) is slightly overvalued compared to Honda, as it is trading with a P/E of 26.64 and a forward P/E of 14.15. Its PEG ratio is 0.59, however, compared to Honda’s PEG of 0.77.

Toyota Motor Corporation (ADR) (NYSE:TM)’s net revenues increased by 18.7%, totaling 22.0 trillion yen for the 2013 fiscal year. Its net income increased to 962 billion yen for the fiscal year, up from 283.5 billion yen for fiscal year 2012. Overall, the company saw increasing automotive sales to 8.87 million units, an increase of 1.51 million from a year ago.

Honda’s net revenues increased to 2.74 trillion yen for the fourth quarter of 2013, up from 2.40 trillion yen for the fourth quarter of 2012. Its net income increased to 75 billion yen from 71 billion yen over the same period. The company’s solid balance sheet allowed for its dividend offer to be hiked from 60 yen in fiscal year 2012 to 76 yen in fiscal year 2013.

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