Why GM Stock & Ford Stock Could Both Double

- November 28, 2016

gm-stockGeneral Motors Company (NYSE:GM), also known as GM, is one of the largest multinational vehicle distribution companies in the world. Ford Motor Company (NYSE:F) is another. Both companies have been at the epicenter of the U.S. economic recovery post-recession. However, you would not know it based on GM stock and Ford stock performance. Both have significantly underperformed the broader market. 

I think that is going to change very soon.

With the market up more than 90% over the last five years and at all-time highs, investors are running out of places to find value. The S&P 500 is trading at 25.5x earnings. That’s most certainly toward the high end of historic bull markets. Therefore, Donald Trump must either deliver on his promise to accelerate GDP (and earnings) growth or the markets are going to reverse lower.

Nonetheless, we’ve watched a rotation in capital ever since Trump’s victory, with GM stock and Ford stock among the two that have performed rather well. We believe there is a great chance that both Ford stock and GM stock continue to outperform the market. Furthermore, we believe that F and GM will be two of the better performing stocks over the next two years, and will likely double.

A catalyst for General Motors stock and F stock

There is a significant catalyst for both Ford and General Motors that will help propel both stocks to new heights. This particular catalyst will deliver accelerated profit growth, which in turn will force Ford and General Motors stock higher.

As many know, a lot of their manufacturing takes place in Mexico. Now that Donald Trump has been elected the next President of the United States, General Motors and Ford are going to be able to import from Mexico a lot cheaper than before.

In recent years, Mexico has become one of the main hubs for leading carmakers.  Due to the NAFTA agreement, which Trump says he will renegotiate if he has to, GM plans to make a $5 billon in investment to Mexico by 2018.  Soon, like Ford, they are hoping to move all of their smaller car manufacturing to Mexico for production, thus saving on cost. This will allow GM to import cars and redistribute the final products to consumers in the US, again, saving on cost with the imports.

Why is this important for both Ford and General Motors? The answer lies in what Donald Trump promised American voters during his campaign. He vowed to bring manufacturing jobs back to the U.S., so it won’t look good if both Ford and GM are doing a lot of their manufacturing in Mexico under his watch. Therefore, expect the Trump Administration to make sweet deals to both companies in an attempt to bring jobs home, and keep jobs in America.

Why GM stock & Ford stock will double

In retrospect, we should not be surprised one bit if Trump creates tax credits and subsidies for GM and Ford like the Obama Administration did for solar and renewable energy. If so, that becomes a huge catalyst.

With that said, there are many catalysts such as the one noted that we believe will drive both stocks significantly higher. Specifically, we expect both stocks to double!

F stock and GM stock trade at 7 and 6x forward earnings, respectively. There is no question that’s the cheapest for any major industry in the market. With catalysts in place to accelerate profit and revenue growth, we expect General Motors stock and F stock multiple to appreciate greatly.

What’s crazy is that a 13x multiple equals upside of about 100%. With dividend yields of 5%, investors will gravitate toward GM stock and Ford stock. It is not a matter of “if” but rather “when”.

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