The automotive industry continues to prove itself as the strength of the economy, producing jobs and strengthening its ecosystem with new fuel saving initiatives. June’s U.S. auto sales further prove my point – making the whole space a buy – but one company is the most attractive.
Above & Beyond Expectations
For the month of June, sales more than tripled expectations with a 6% year-over-year gain to 264,843 units. Of course, crossovers remain top performers with gains of 9%, but trucks/SUVs with an 8% gain also impressed.
For General Motors Company (NYSE:GM), sales rose 6% as a 38% rise in Cadillac and a new all-time best for the Chevy Volt led the company to beat expectations. Yet, strangely, despite these strong numbers, shares still traded flat to modestly lower on Tuesday. The reason: Strong performance by Ford Motor Company (NYSE:F), as it shows that it is currently the best performing company in the space.
Ford Motor Company (NYSE:F) saw its stock rise by 2.6% on Tuesday, coming behind a 13% year-over-year gain in monthly sales. Much like General Motors Company (NYSE:GM), cars were strong, contributing a 12% gain as the largest segment. However, it was the continuation of strength among trucks that really impressed investors, as the segment rose an inspiring 20%.
Is It Time to Buy Auto Makers?
In this economy, we simply don’t see massive segments of the U.S. growing at such rapid rates, nor do we see the largest of these companies leading the way with year-over-year growth. Yet, this has been the trend for the better part of four years, as General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) have rapidly recovered from the recession.
Most people look at the past year for these auto makers and see fairly strong periods of performance. Both stocks have gained approximately 75%. Yet, what very few realize is that both are actually underperforming the market on an extended chart period.
Since January 2011, General Motors Company (NYSE:GM) has traded with a loss of 2.45% and Ford Motor Company (NYSE:F) has lost 3.7% of its valuation. During the same period, the S&P 500 has produced gains of 28%. With the auto industry being the fastest growing of the large economic industries, I find this as a reason to buy.
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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