For more than five years, auto sales have been the strength of the U.S. economy. In April 2010 the Seasonally Adjusted Annual Rate (SAAR) was 11.28 million units and today the SAAR sits at more than 15.32 million units. In March sales increased more than 5%, showing incredible industry strength. Yet despite these massive gains in auto sales, the largest auto-makers are still underperforming the market, rather than leading the market in performance.
A Look at Two Industry Giants (& their Lack of Performance)
Since July 15, 2011, which was just before the S&P downgraded U.S. debt and also during the period of debt negotiations, General Motors Company (NYSE:GM) has traded with a loss of 2.0% while the S&P 500 has gained 18.5%. During the same period, General Motors Company (NYSE:GM)’ competitor Ford Motor Company (NYSE:F) has traded with a similar 1% loss.
The question is if auto is the strength of the U.S. economy, creating thousands of jobs, why are these stocks trading lower? It doesn’t make sense, and there is no logical explanation. General Motors Company (NYSE:GM) still has the attachment to government from its recession bailout, but Ford is independent with a dividend yield of 3%. Yet both companies trade with single-digit P/E ratios and price/sales ratios near 0.35, despite strong revenue growth.
Some bears may suggest that Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM)’ weakness is due to Europe and unpredictable costs. While these suggestions may be true, it doesn’t explain the degree of weak performance relative to the strength of the overall industry.
Thus conventional wisdom suggests that in time both stocks will appreciate to reflect fundamental and macro gains, and at this very moment, losses are more technical and are making both stocks more attractive to long-term value investors. While this is most likely true, investors should take notice of another auto-related company, one that has performed with perfection since the recession, and that is Sirius XM Radio Inc (NASDAQ:SIRI).
Sirius XM: The Best Auto Play for Gains Now
Since July 15, 2011, Sirius XM Radio Inc (NASDAQ:SIRI) has increased in value by 45% and since January 2009 the stock is higher by more than 2,000%. In many ways, Sirius XM Radio Inc (NASDAQ:SIRI) has become the quintessential automotive play because it directly benefits from the sales of new automotives. It offers a service (Sirius XM Radio Inc (NASDAQ:SIRI)) in most new cars that is free for a period of three or six months (even a year in some), and then once the trial is up the company benefits from those who subscribe. Hence the company benefits from a large number of vehicles being sold, and this has rung true for all of the last three years.