Ford Is A Gem, GM Is A Diamond In The Rough, Toyota Is A Clunker

Includes: F, GM, TM
by: Vatalyst

The domestic auto market was strong in 2011. Especially for domestic producers like Ford (NYSE:F), General Motors (NYSE:GM) and Dodge. Total auto sales grew in 2011 and U.S. based companies took market share from foreign based competition. At the end of the year sales of top models like Fords F-series and the Chevrolet Silverado were up over 10 and 12% respectively. Sales of Toyota's top models were all down by over 5%.

Ford Motor Co. is one of America's most iconic brands. As one of the nation's oldest corporations, Ford is of particular interest. The automaker recently posted U.S. sales up 17% in 2011 and 11% total. Ford is predicting 3% world growth and 2-3% U.S. growth in 2012 and expects a continuation of company growth. Ford has scheduled the release of fourth quarter results for January 27th. The current average estimate is $.25/share, a 16% decline from the same period in 2010. Third quarter net income was also lower than 2010. Unrealized losses in mark-to-market adjustment on future commodity hedges were listed amongst other negative impacts. The company also realized losses related to personnel reduction and dealer related actions. Total revenues for the third quarter were up and improvements to the balance sheet should begin to pay off in 2012.

Ford is increasing sales world wide. Sales in India are up 15% for 2011 and far exceed estimates. Sales of Ford products rose 7% in China, with a 10% gain in December alone. Ford has emerged from its restructuring process as a leader in world auto production. A strengthening balance sheet and evidence of global growth will take this stock higher. Ford is currently trading around $12.90 with a forward looking p/e of 8, this is grossly undervaluing the stock. Ford will beat the street this year. The stock has long term support and a solid base around $10. Even if Ford only matches expectations for the fourth quarter, the news will relieve the market and help build further support. Ford will make profits and continue to pay down its debt in 2012. I expect to see Ford at $17.50 before year end.

Another company striding into 2012 is General Motors . It's a little surprising that the company has been able to recover as well as it has. The new GM looks good on paper and is making positive headlines. General Motors is undervalued as well, with a forward looking p/e of 6.5 and very little debt. Fourth quarter earnings will be announced late next month. Third quarter earnings, released November 9th, 2011 showed stockholder earnings were down but net revenue was up 2.6 billion over the previous year. General Motors is expecting fourth quarter 2011 to look much like 2010, based on weakness in Europe and seasonal trends. Earnings per share in that quarter were $.21, lowered by losses on U.S. treasury preferred shares.

Total sales of GM brands grew more than 7% in 2011 and set a global sales record for the company. Net cash flows for the year are down but production levels are up. General Motors also regained market share in 2011. The gain put GM back on top as the world's largest automaker. Analysts expect U.S. auto sales to grow 4-9% in 2012, a trend that could easily boost General Motors' profits. General Motors is worth watching. The company could surprise with earnings this year.

Despite the all the spots of optimism, General Motors still has lingering problems. The company is under congressional investigation for fires in its electric model, the Volt. The company is still owned in large part by the federal government, a shadow looming over the market. I think fear of government selling of the stock will keep the share price in check. GM is currently trading around $25, near the top of its 6 month range. GM is definitely building a base of support but it will keep trading sideways for the next few months.

Toyota Motor Company (NYSE:TM) is one highly valued stock. The Japanese automaker is currently trading at 45 times earnings despite losing market share and a string of natural disasters which hurt production. In its fourth quarter statement Toyota reported sales flat with the same period last year and down 7% on a year-over-year basis. Lexus, a division of Toyota Motor Co, also reported a 13% decline in sales from 2010. Flooding in Thailand and the earthquake in Japan were both mentioned in statements discussing 2011 results and 2012 forecasts. Uncertainty over the effects led to cautious statements last December and a firmer view more recently. Toyota is expecting full year revenue to decline 3% more than previous expectations, basically flat for the year.

Toyota has been losing market share to its U.S. based competition for several years. I think this is due to improvements in the corporate operations of Ford and GM, improvements in brand quality and a growing trend to "buy American". Sales of Toyota's top four brands have all declined in 2011, with the Camry and Corolla both dropping more than 5%. This stock has been trending sideways for years and was on the way down a full year before the U.S. financial crisis. Toyota is losing support and won't perform well this year. Ford looks a lot better with solid support at the $10 range. It is also really cheap compared to Toyota, and has recently reinstated its dividend. The dividend is another sign of strength and helps lower cost basis in Ford shares.

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