Revisiting Ford vs General Motors: Why GM Stock Will Continue to Outperform

- October 5, 2017

Over the last few months we have witnessed separation in the performance of Ford Motor Company (NYSE:F) and General Motors (NYSE:GM) stock. For 2017, Ford stock is essentially flat whereas GM stock has soared 26%, including 18% during the last month. When you look at the underlying components tied to each business, both major players in the auto industry, it is difficult to find a disconnect. At first glance, both Ford and General Motors stock look cheap, pay solid dividends, and near equals.

As seen in the above chart, General Motors (NYSE:GM) and Ford Motor Company (NYSE:F) are pretty much neck-and-neck when it comes to the performance of their respective top and bottom lines. The variation is ever so slight. Even when you look at things like unit sales in North America, the two companies are virtually the same.

With that said, there are certain regions, areas, and vehicle types where Ford performs better than GM, and vise versa, but the core businesses of each company tend to balance out and create the illusion of near equals. So then why is General Motors stock leaving Ford behind?

The answer to this question lies in something we discussed back in December of last year. Since then, we have published several articles explained why 1) Ford is going nowhere fast despite being cheap and 2) why GM stock’s valuation coupled with strategy makes it one of the most attractive investment opportunities in today’s market.

Here is what we said back on December 16, 2016:

“General Motors is investing in self-driving cars, its partnership with Lyft, and new programs that create recurring revenue such as renting vehicles. The ride-sharing service Uber is reportedly worth more than $65 billion. Yet it does not have the size, revenue, or profits of GM. Investors are betting on the future, and General Motors has strategically followed the market’s lead with its own investments. Ultimately, that’s what causes General Motors stock to more than double as its multiple rises from a measly 6x forward earnings.

Meanwhile, Ford is investing in the green, clean energy that President Obama and Hillary Clinton pumped for eight years. The market has since changed, thereby making Ford’s recent $4.5 billion investment in electric and hybrid vehicles unwise. Ford wants 40% of its lineup to be electric or hybrid by 2020. For a company the size of Ford, that is a massive change in direction to an industry that is still niche and is unprofitable without the existence of subsidies and tax credits.”

We believe the strategic change in direction for these two companies has allowed GM stock to create separation. And while Ford has backpedaled some, it has still pledged billions of dollars to embrace technology that is yet to prove itself profitable.

Meanwhile, General Motors’ self-driving unit, Cruise Automation, has increased the number of vehicles registered for testing in California from 30-40 cars to 100 according to Reuters, and appears to be pushing forward in all of the areas that have investors excited. We believe the separation between Ford stock and GM stock will only widen, as General Motors stock continues to soar higher and eventually double from prices in December of last year and Ford moves marginally higher if the market continues to rise.

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One Comment

  1. Eddy Parton
    Posted October 5, 2017 at 4:16 pm | Permalink

    Great Article!

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