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One complaint I have always had about traditional brokerage research is that analysts never seem to be aware that investors have limited resources. If an analyst is covering some segment of the market with five companies in it and rates 3 of the 5 a buy, how is an investor supposed to decide which one to choose? Analysts almost never directly rank companies against one another or even offer much of a comparison between firms which makes it difficult to compare choices.

With that in mind, this article will focus on a broader look at the automakers and at the end we will rank each of the companies from most attractive to least attractive. This ranking is based on financial metrics for each firm and the analysts' views of each firm. (Note: If this article seems well received, I will write future articles on other market segments, so please comment below and follow me on my profile for future articles, or on my blog here.)

Today's eight investment options competing for your dollars hail from across the country and around the world and include Ford (NYSE:F), General Motors (NYSE:GM), Fiat (OTCPK:FIATY), Toyota (NYSE:TM), Tesla (NASDAQ:TSLA), Honda (NYSE:HMC), Tata Motors (NYSE:TTM), and Daimler (OTCPK:DDAIF). I am leaving out Nissan (OTCPK:NSANY), Volvo (OTCPK:VOLVY), and Volkswagen (OTCPK:VLKAF) because while all of these companies are potentially good investment for US investors, they are very difficult to invest in because of the illiquidity of their shares on the OTC markets. Daimler and Fiat are included because their shares are more active on the OTC markets, but investors should still be aware of the risks associated with investing in companies trading off the regular exchanges.

Let's start by looking at the basics for each of the companies. Ford and General Motors are US companies with great brand recognition in what is probably the second fastest growing industry in the country right now (housing being the fastest growing), but they are both saddled with problematic operations in Europe, and face home-field champions in Asia. Fiat and Daimler are the best run of the European firms and have respectable international businesses. Toyota, Honda, and Tata are all Asian firms with extensive experience in making low cost cars for the biggest and fastest growing markets across Asia. Finally, Tesla is the American disruptor which has brought the most credible challenge to the established industry in decades.

The chart below summarizes the market caps, valuation metrics, and one-one year performance of each of the firms below.

Name

Ticker

Market Cap

P/E Ratio

P/B Ratio

One Yr. Chg.

Ford

F

61.5B

10.5

3.5

52%

General Motors

GM

46.8B

11.6

1.8

62%

Fiat

FIATY.PK

9.3B

42.8

1.1

65%

Daimler

DDAIF.PK

67.5B

9.6

1.3

43%

Honda

HMC

67.2B

17.2

1.3

16%

Toyota

TM

193.7B

19.2

1.5

63%

Tata

TTM

13.5B

48.0

12.6

12%

Tesla

TSLA

12.5B

NM

70.6

71%

The chart clearly shows that most of the automakers have had a good year with all of them seeing stock price increases. India's Tata Motors and Japan's Honda have been relative laggards while Tesla, Fiat, and Toyota have all had very strong performances. Toyota's performance has been due in part to the resurgent expectations for Japan over the last six months and in part stemming from recovery after the Tsunami and the Japanese-Chinese tensions over the Senkaku Islands. Toyota, like Ford and GM, has been an attractive recovery story amidst the slow global economic growth. In contrast, Tesla has had a remarkable rise on the back of what looks like it might be a historic disruption of the overall auto industry. It seems that not a week has gone by without Tesla making a major announcement or being the subject of some piece of positive publicity.

From a basic valuation standpoint, Honda, Daimler, and Ford all look fairly attractive based on their price-to-book ratio and price-to-earnings ratio, but it's useful to dig into the financials to check for red flags. These financials are displayed in the table below.

One Year Changes (2011-2012) On Key Accounting Variables

FYE

Rev. Chg.

OI Chg.

Tot Liab. Chg.

Tot. Assets Chg.

Ford

-1.5%

-17.0%

6.7%

6.7%

GM

1.3%

NM

3.5%

6.6%

Fiat

40.0%

7.1%

2.4%

2.5%

Daimler

7.2%

-8.7%

10.0%

10.1%

Honda*

5.6%

-2.2%

2.1%

0.9%

Toyota*

7.9%

91.0%

10.3%

9.6%

Tata

34.9%

56.9%

36.5%

40.5%

Tesla

102.5%

NM

102.2%

56.2%

As the table shows, the financials have been all over the map for these firms over the last few years. The table shows percentage changes in operating income, revenue, total assets, and total liabilities from the FYE 2011-2012. In the case of the Japanese companies, I have taken the average change from FYE 2010-2012 to account for the turmoil of the tsunami and subsequent supply chain disruptions. All percentage changes are in the firm's native currency so as not to bias the figures based on currency fluctuations.

The table demonstrates that GM and Ford have been in slow growth mode over the last few years. Having survived the financial crisis, both firms are adding assets and liabilities slowly, and while Ford saw a slight decline in sales from 2011 to 2012, GM saw a slight increase. On the other hand, GM saw a large fall in operating income as a result of asset write-downs. Fiat has grown faster though its financials have been largely distorted by the Chrysler situation and its attempt to absorb the UAW's Chrysler stake. Daimler has performed well in terms of sales growth, but it is significantly hindered by its ties to Europe.

In contrast, both Tata Motors, and to a lesser extent Toyota, have performed very well of late. Tata Motor's growth has been explosive as the company goes on a tear expanding in India and attempting to expand internationally. This growth of course helps to explain the company's sky-high valuation shown above. The primary concern for investors in Tata Motors is the slowing growth of India and for American investors, the weakness of the Rupee (which hurts the firm's profits as denominated in dollar terms).

Based on the financials and valuation metrics thus far, Tesla, while rapidly growing, simply looks very risky in comparison to the other firms. In contrast, Tata Motors and Daimler look fairly attractive given their growth. Let's look at what the analysts think of each firm though, and how the firms reward their shareholders via dividends.

FYE

Sell %

Hold %

Buy%

Dividend

Ford

8% (2)

40% (10)

52% (13)

2.6%

GM

4% (1)

17% (4)

78% (18)

0.0%

Fiat

67% (2)

33% (1)

0% (0)

0.0%

Daimler

0% (0)

43% (3)

57% (4)

3.5%

Honda

0% (0)

67% (2)

33% (1)

2.3%

Toyota

0% (0)

67% (2)

33% (1)

1.6%

Tata

33% (2)

33% (2)

33% (2)

1.4%

Tesla

9% (1)

27% (3)

64% (7)

0.0%

One thing that is immediately obvious and should be a caveat for US investors looking at any foreign automaker; foreign firms are far less covered than domestic firms. Despite having a much larger market cap than GM or Ford, Toyota for example, has 3 analysts following it versus 23 and 25 for its American counterparts.

With that in mind, it looks like the analysts are favoring GM, Ford, Daimler, and Tesla. GM and Tesla would be of little interest to income investors given their lack of earnings, but both Ford and Daimler offer reasonable dividends. In contrast, analysts seem very concerned about Fiat and split on Tata Motors (though admittedly both firms have little coverage).

Now, based on all of these factors, let's rank our automakers in terms of their relative attractiveness. The chart below breaks down the ranking, though admittedly there are many different ways these firms could be ranked depending on the objectives of the investor in question. In this case I have chosen to rank the firms based on a 1 or 0 in each of six categories; P/E ratio below average, P/B below average, revenue growth above average, assets growth above average, analyst buy recommendation above average, and dividends above average. Ties are decided by the firm with the stronger one year performance. This methodology is roughly in line with recent research by others based on the four factor model described more on my blog here. Here's how the firms stack up.

P/E

P/B

Revenue

Assets

Buy %

Div.

Rank

Ford

1

1

0

0

1

1

1

Daimler

1

1

0

0

1

1

2

Tesla

0

0

1

1

1

0

3

GM

1

1

0

0

1

0

4

Toyota

1

1

0

0

0

1

5

Honda

1

1

0

0

0

1

6

Tata

0

0

1

1

0

1

7

Fiat

0

1

1

0

0

0

8

Overview: So based on my methodology, Ford is the top choice, followed by Daimler, and then Tesla. The number one and two ranks are fairly clear and fit with the anecdotal evidence. Ford is executing very well right now and Daimler has one of the best businesses and brand-names out there. Beginning with Tesla down through Honda, the choices are much less clear cut - think Japan is coming back? Toyota and Honda are the way to go. Believe in the future of electric cars? Tesla is the only reasonable choice. In contrast, Tata Motors while growing strongly has less appeal because of its high valuation and concerns among analysts that the Indian slow-down may take a while to reverse. Finally, Fiat, while a very solid company, simply has too weak a brand name and too much exposure to Europe to be attractive to anyone except a very long term investor. The best thing about Fiat is the ownership stake in Chrysler, and even that is very muddled because of the UAW's reluctance to sell its stake at a fair valuation.

Finally, it's worth noting one point; Is this the only way to rank the firms? Obviously not, but it is a reasonable way to do it in my view. The point here is to get investors to think in terms of alternatives to any given firm. Sure, Ford might be a good investment, but is it a better or worse investment than GM or Toyota. Based on my system it is, but investors may wish to weight different elements differently based on their own risk tolerance and preferences.

Source: These 2 Automakers Stomp The Competition And Are Solid Investments