Auto stocks have been underperforming the markets for many months. Even as the major market indexes pushed to four-year highs recently, many stocks in the auto sector were trading closer to their 52-week lows. Auto sales in North America have been strong, but concerns about a slowing economy in China and the debt crisis in Europe are really weighing on the sector. There is a strong chance things in China and Europe will get worse before they get better, so it might be time for investors to just accept that lower prices are not only possible, but even likely for stocks like Ford (F) and General Motors (GM).
It has become clear that despite solid earnings, price-to-earnings ratios that are well below the market average, and numerous analyst buy ratings with price targets that indicate major upside, nothing seems capable of stopping these stocks from trending lower. Since these common sense points have not seemed to be helpful in finding a bottom for these stocks, it makes sense to consider looking at where these names have found support and bottomed out in the past, as well as where important psychological support levels might be. Here is a closer look at these top auto stocks and an attempt to evaluate where these shares might bottom out, giving investors a potential buying opportunity.
Ford has become an impressive turnaround story thanks to excellent management from CEO Alan Mulally. Even though the company has made considerable progress since Mulally joined Ford in 2006, the share price has not fully reflected it. The company has improved its balance sheet, initiated a new dividend, and recently received a credit rating upgrade, but the stock still trades near its 52-week low. Ford has been reporting solid profits and is about to launch two important new models: the Ford Fusion and the Ford Escape, both of which are important and likely to be popular due to affordability and fuel-efficiency.
Clearly all these positives don't seem to matter as much now as does the European debt crisis. That means this stock might only find support at the psychologically important $10 level. Also, going back to January 2010, Ford shares have found significant support at about $10 per share multiple times: The stock bottomed out around $10 in February, in July 2010, and then again in September and November 2011. Between the psychological support level of $10 per share and the fact that this stock has historically found support at that level, $10 per share is probably the time to buy this stock as the market corrects.
Key Data Points For Ford:
- Current price: $10.67
- 52-Week Range: $9.05 to $15.35
- Dividend: 20 cents per share, which yields 1.9%
- 2012 Earnings Estimate: $1.49 per share
- 2013 Earnings Estimate: $1.72 per share
- P/E Ratio: about 6 times earnings
General Motors is a leading automaker in the U.S. that also has significant exposure to China, as well as to Europe through its Opel division. Europe has historically been a money loser for General Motors, and that is unlikely to change anytime soon given the economic woes in many European countries. General Motors sales have been strong in China where the Buick brand is popular, and North American sales have been impressive as well. The company will soon launch a newly designed Chevrolet Malibu with a 2013 model year. The Malibu has historically been a top-selling vehicle, and the new Malibu will get up to 37 miles per gallon.
The U.S. government still owns a major stake in General Motors due to the bailouts it received and this will probably be a drag on the stock until it is sold. This stock traded for nearly $40 per share in January 2011, but now trades for close to half that level. The stock has found support at about $20 per share in September, November, and December 2011. The $20 range appears to be a strong level of support for both psychological and historical reasons, so investors might want to patiently wait $20 before buying or adding as the market corrects.
Key Data Points For General Motors:
- Current price: $22.36
- 52-Week Range: $19 to $32.08
- Dividend: none
- 2012 Earnings Estimate: $3.52 per share
- 2013 Earnings Estimate: $4.59 per share
- P/E Ratio: about 6 times earnings
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
