4 Risky Car Stocks For Speculative Investors

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 |  Includes: F, GM, NSANY, TM
by: Dividend Kings

One stock market sector that has really underperformed is the Auto manufacturing sector. Ever since the massive 2008 U.S. bailout of General Motors and Chrysler, investors have been leery about investing in auto manufacturing stocks. This article will examine four major auto manufacturers to see if now is the right time to give these stocks a second chance.

General Motors Company (NYSE:GM) General Motors has a market cap of $38.28 billion with a price to earnings ratio of 5.36. The stock has traded in a 52 week range between $19.05 and $39.37. The stock is currently trading around $24. The company reported third quarter revenues of $36 billion compared to revenues of $34 billion in the third quarter of 2010. Third quarter net income was $2 billion compared to net income of $3 billion in the third quarter of 2010.

One of General Motors' competitors is BMW (BMW.DE). BMW is currently trading around $59 with a market cap of $38.61 billion and a price to earnings ratio of 7.32. Neither BMW or General Motors pays a dividend.

GM is one of the largest manufacturers of new cars in the world. As a result of expensive labor contracts and reduced market share, the company was forced to file for Chapter 11 bankruptcy in June of 2009. The company has streamlined cost and in 2010 it had net income of $6.17 billion. The company has continued to increase earnings and reported net income of $8.45 billion through the first three quarters of 2011. The company was also able to increase its market share in 2011.

On January 10th Mark Reuss, General Motors Co.'s North American president, said that "rising sales seen by GM and the U.S. industry are continuing through the first 10 days of the month." It seems that GM has made positive strides since it declared bankruptcy. The company should also benefit from an improving economy and an exchange rate which favors the dollar over the Japanese Yen. Despite the company's positive achievements, investors have not bought into a General Motors turnaround, and the stock is down by nearly 40% over the last 52 weeks. Investing in GM is speculative and investors should do further research.

Ford Motor Company (NYSE:F) Ford has a market cap of $46.06 billion with a price to earnings ratio of 7.27. The stock has traded in a 52 week range between $9.05 and $18.97. The stock is currently trading around $12. The company reported third quarter revenues of $33 billion compared to revenues of $30 billion in the third quarter of 2010. Third quarter net income was $1.6 billion compared to net income of $1.6 billion in the third quarter of 2010.

One of Ford's competitors is Chrysler Group LLC which is privately owned. Ford is one of the three biggest auto manufacturers in the United States. In the third quarter, the company increased its year-over-year revenues10%, while its net income was flat. In 2008 Ford and its two U.S. competitors, General Motors and Chrysler asked for a government bailout. Ford did not receive a bailout because it was in a better financial situation than its competitors.

After years of losses Ford reduced waste, and in 2010 Ford increased its revenues by 11% and its net income by 142%. The company has reported net income of $6.58 billion through the first three quarters of 2011, and is on track to handily beat 2010's net income of $6.56 billion. The company saw a slight uptick in its new car sales and its market share during 2011 and its 2012 sells have been brisk. Unfortunately for Ford, the auto manufacturer market sector is suffering-- and as a result, its stock price is down by almost 37% over the last 52 weeks. On a relative basis, however, Ford continues to be a better bet than Toyota. This is a stock that might be of interest to bottom fishing investors, but I do not think that the stock will move higher in the near future. Investing in Ford is speculative and investors should do further research.

Nissan Motors (OTCPK:NSANY) Nissan has a market cap of $37.02 billion with a price to earnings ratio of 9.67. The stock has traded in a 52 week range between $16.18 and $22.23. The stock is currently trading around $18. The company reported second quarter revenues for the period ending on September 20th, in the amount of $2.2 billion compared to revenues of $2.2 billion in the second quarter of 2010. Second quarter net income was $98 million compared to net income of $101 million in the second quarter of 2010.

One of Nissan's competitors is Volkswagen AG (VOW.DE). Volkswagen is currently trading around $114 with a market cap of $53.11 billion and a price to earnings ratio of 3.25. Neither Volkswagen nor Nissan pays a dividend.

Nissan manufactures automobiles as well as industrial machinery and marine equipment. In the third quarter, the company had flat year-over-year revenues while its net income was down by 3%. The company increased its year-over-year 2011 revenues for the period ending on March 31st by 16% and its net income by 659%. In 2011 the company increased its overall car and light truck sells, as well as its market share for cars and light trucks. In the first Quarter of the 2012 fiscal year ending on June 30, 2011, Nissan sold 933,752 units or 6.9% higher than the previous quarter, when it sold 924,347 units. The company's margins (gross margin 17.44/operating margin 5.81) were better than its competitors.

Despite the company's strong 2011 earnings results, Nissan's stock was dragged down because it is in a down and out market sector. Nissan stock price could also be hurt by the Japanese Yen's high exchange rate, which could hurt its overseas sales. The stock price is down by about 14% over the last 52 weeks. The stock of auto manufacturers is in a downward trend, and I do not see Nissan making a near term turnaround.

Toyota Motor Corporation (NYSE:TM) Toyota has a market cap of $58.23 billion with a price to earnings ratio of 20.54. The stock has traded in a 52 week range between $63.53 and $93.90. The stock is currently trading around $69. The company reported second quarter revenues for the period ending on September 30th, in the amount of $4.5 billion compared to revenues of $4.8 billion in the second quarter of 2010. Second quarter net income was $80 million compared to net income of $98 million in the second quarter of 2010.

One of Toyota's competitors is Honda Motor Company Inc. (NYSE:HMC). Honda is currently trading around $32 with a market cap of $58.23 billion and a price to earnings ratio of 20.54. Honda pays a dividend which yields 2.2% versus Toyota whose dividend yields 1.4%.

Toyota is the largest vehicle manufacturer in the world in terms of market cap. In the second quarter, the company's year-over-year revenues decreased by 6% and its net income decreased by 22%. On December 9th, Toyota announced that its earnings for the fiscal year ending on March 31, 2012, would be down by 54%. The company blamed the earnings shortfall on the Japanese tsunami, the Thailand flooding and the strong Japanese Yen. The company has gotten past 2011's unusual business challenges, and its production is almost back to normal.

The company aims to achieve "20% growth in global sales to 8.48 million vehicles in 2012 on the production of 8.65 million vehicles, up 24% from 6.97 million in 2011." Toyota's stock price has suffered like that of all of the other major vehicle manufacturers and is down by about 20% over the last 52 weeks. Toyota will continue to have problems selling cars in North America because of the strong Japanese Yen. Also, Toyota's stock performance is tied to the performance of the auto manufacturing sector, which means that its stock price is not likely to move up in the near future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.