Which One Is Better: Ford Motor Company (F) or General Motors Company (GM)?

2. North American margins clearly tell the story of where upside lies. For Ford, current North American pre-tax margins are in the 10% to 11% range, and are likely “as good as it gets,” especially as Ford Motor Company (NYSE:F) would rather reinvest in product and brand initiatives than let margins run higher into the 12%+ range. GM, however, has upside to 10% margins in North America, up from the 7% posted in 2012. Improvements will come from product launches and cost reduction initiatives, and both sets of initiatives will bear fruits.

3. Moreover, the preference for GM is not simply relative to Ford, but also stands as one of the top picks in this space. Simply put, investors under-appreciate the turnaround at GM, as evidenced in GM’s valuation. While other suppliers like Dana (NYSE:DAN) and Lear appeared “cheap” last year, they no longer appear “cheap.” Meanwhile, GM’s valuation has not improved in the same manner. It is currently at 2.3 2013 earnings EV/EBITDA, and one can easily see an additional turn of upside.

How are GM and Dana related?

For those who don’t know or just don’t remember, it was Steven Girsky, the current Chairman of General Motors Company (NYSE:GM)’s European operations, who brought around the turnaround at Dana a couple of years back. Since then, the market has favorably viewed Dana as an investment. Still Dana remains the most under-appreciated “return of cash” story within the auto-supplier group.

Although return of cash to shareholders (particularly via execution of buybacks) has been very measured by management, at times to the frustration of some shareholders, positive comments were heard on the 1Q 2013 call that capital allocation is a priority for management and the board, and evaluation of boosting the size and pace of the buyback is a possibility. In short, investors are urged to be patient – the return of cash will eventually occur.

Final word

In the long run, GM seems to be the better investment given its upcoming catalysts, improving margins, a super management team to lead a European restructuring and cheap valuations.

Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.

The article Which One Is Better: Ford or GM? originally appeared on Fool.com.

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