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During the last few months I have written several articles regarding the automotive industry, with an emphasis on Ford (NYSE:F) and General Motors (NYSE:GM). I have been especially bullish on both companies as I expect each stock to increase by more than 100% over the next year. The progress of both Ford and GM is simply too good to ignore, and I believe it will not be much longer before the market takes notice on a consistent basis.

Investors are fully aware of both Ford and General Motors recent financial success which include strong earnings and an improved balance sheet. Yet, the stocks have continued to drop lower. And although each stock showed some light on Tuesday, both created new 52 week lows before trending higher to gains of 8%.

If you look at the collective news for both companies over the last few days you can see why investors have decided to purchase shares. Yet I believe the gains will be short lived, because when the dust settles and a new round of discouraging indicators are released, both GM and Ford will be the first to fall.

Even after Tuesday's large gains, both stocks have lost nearly 30% of value over the last 3 months. We all know about the financial mess in Europe and the mortgage crisis in America, yet I have been unable to connect the dots between the economic concerns and these two automotive companies. During the recession both stocks lost a large amount of value, but it was the result of lagging fundamental performance, which I do not see at this time.

My personal belief regarding the stock performance of both Ford and GM is based on fear within the market. There is a psychological correlation between both companies and the recession because of past performance during the recession, including GM losing control to the government. Yet there are very few similarities between now and the recession of 2008 in regards to the auto industry.

In 2008, auto sales were declining yet now auto sales are improving, by large margins. Both companies have new long term contracts with the UAW and plan to hire a significant number on new employees but in 2008 employees were being laid off. Both companies have made references to returning capital for investors when in 2008 this luxury was taken from investors. And in 2008 the best selling models for both companies were not considered the best in fuel efficiency, nor were the models new in style, but today the top selling vehicles for both companies are new-look models with great fuel efficiency.

There is a large difference between Ford and GM in 2008 and in 2011. Yet both stocks continue to fall with the same intensity despite such encouraging developments from both companies. I have stated that I believe the loss is psychologically driven as the recession is fresh on the investor's mind, and in fear of another recession the investor associates the auto industry with a falling economy. This behavior makes sense, but the truth is that the auto industry is one of the strengths of our economy, therefore both GM and Ford should be trading near 52 week highs, not creating new lows.

As investors, there is little we can do to control the mass panic within the markets since volatility will most likely remain strong over the next few years. We are recovering from the worst financial crisis since the depression, therefore it's natural for investors to be somewhat skeptical of stocks that have performed dismal in the past. Yet I believe that with GM and Ford's increased fundamentals and encouraging outlook for the future, a significant amount of value is now present. One thing that we can not deny is that sales are going up and both companies are making moves that show confidence within management. As a result I believe both stocks will recover.

There will come a time, sooner rather than later, that investors will no longer be able to ignore the strong fundamentals of these two fast growing companies and the stock will rise. But until that time expect more volatility, and while Tuesday was nice, there will most likely be more days of loss. But if you are a long term investor, or if you are willing to ride out the inconsistencies of the market, you will most likely see large gains from either of these two companies with improvements that are too strong to ignore.

Source: Ford And GM: 2 Companies With Improvements That Are Too Strong To Ignore