While the major indices took a beating on Wednesday, auto manufacturers and auto component suppliers revved ahead in unusual high volume.
The major news in the sector Wednesday was that the federal government indicated that it will sell its remaining stake in General Motors (GM) by early 2014. GM will buy back 200M shares from the Treasury for $27.50/share or $5.5B in a deal to close by the end of the year. That will leave 300M shares of GM still owned by the federal government. The remaining shares will be sold within the next 15 months via stock offerings or other means. GM stock was up 6.6% to $27.18 on over six times normal volume.
Johnson Controls (JCI) also had a very good day as the stock surged by 1.9% on 55% higher than average volume. Johnson Controls announced their fiscal 2013 expectations for $43.5B in revenue and diluted EPS of $2.60-$2.70. That exceeded analyst estimates of $42.3B in revenue and EPS of $2.59. Regarding their automotive business, they indicated that compared with 2012 they expect slightly higher 2013 automotive production in North America and China with lower production in Europe. That bodes well for GM which sold 32.4% of its vehicles in North America and 28.2% of its vehicles in China in 2011. GM has a much smaller exposure in Europe where it sold only 19.2% of its vehicles in 2011.
Johnson Controls' expectations are also good for Ford (F) which sold 47.2% of its vehicles in North America in 2011. Ford sold 9% of its vehicles in China and 28% of its vehicles in Europe in 2011. Ford was up 0.5% for the session on 32% higher volume.
Both GM and Ford look inexpensive on a P/E basis and both look like buys as they are trading at only 7.3 and 8.0 times 2013 earnings expectations respectively. On the other hand, Toyota Motors Corporation (TM) is trading at 11.3 times fiscal 2014 (ending March 2014) earnings expectations and Honda Motor (HMC) is trading at 10.0 times fiscal 2014 (ending March 2014) earnings expectations. GM will have some pressure on it as the government dumps the remaining 300M shares which represents 19.2% of the outstanding shares. For this reason, Ford might be a better bet to buy although GM's expected earnings growth rate for 2013 is somewhat better at 14.7% vs. 9.0% for Ford.