Where Have the Gains Gone?
Strangely, as General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) have consistently produced high single digit to low double digit year-over-year sales growth for the last three years, both have underperformed the market. Indirectly, gains have been given to those companies who benefit from auto strength, such as Sirius XM Radio Inc (NASDAQ:SIRI).
Sirius XM Radio Inc (NASDAQ:SIRI) offers its satellite radio in new vehicles, then benefits when buyers become subscribers after a trial period ends. During its last quarter, Sirius XM grew revenue 11.5% year-over-year, which is slightly better than the rate of new car sales growth. Thus, Sirius XM has benefited from a higher volume of cars sold, not necessarily from a far better rate of execution.
In my opinion, this trend could abruptly change: GM and Ford are already beginning to outperform the market and a company such as Sirius XM is now facing new competition, forcing the market to reassess their plays on auto strength.
Which One Is the Best?
While I believe that you can not go wrong with an investment in either Ford or GM, I do believe that Ford is the best and safest choice.
Both stocks are similarly valued relative to sales and earnings, but it’s the other less talked about metrics that give Ford the edge.
For example, both companies saw strong unit growth over the last year, but during the last quarter, GM saw its sales decline 2.3% while Ford’s rose 10.4%. This indicates that Ford is selling more high-priced vehicles.
In addition, Ford has operating margins of 4.83% compared to 1.45% for GM, showing that Ford is the more efficient of the two. Finally, Ford returns a dividend of 2.5% to shareholders, while GM does not.
As a result, I think Ford gets the edge, although I think the entire industry, and especially these two companies, are without question a “buy”!
The article This Auto Company Continues to Separate Itself As the Clear Leader originally appeared on Fool.com.
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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