Since 2008, U.S.-based automakers have been trying to regain their presence as some of the premier names in the global auto industry. This article examines the near-term upside potential of two of America's best-known automakers from a fundamental standpoint.
Ford Motor Company (F): Ford trades in a 52-week range of $9.05 (52-week low) to $14.22 (52-week high) and closed at $10.65 on Wednesday, June 20th. Shares have risen nearly 4% over the last five trading sessions, and shares were up today on the news that Ford is developing a lab that will be located at the heart of Silicon Valley. The premise behind the establishment of the lab will be to mine user-enriched data to better enhance the overall customer experience. That being said, Ford looks very affordable at these levels considering it trades at P/E ratio of 2.26. Even though it is has been flat for most of the year, the company could surpass earnings in both the second and third quarters.
Analysts are expecting Ford to earn $0.35/share on revenue of $33.03 billion for the June 2012 quarter. Even though three quarters have been decent, investors should still remain cautious as the U.S.-based auto industry hasn't fully recovered from the 2008 economic crisis. For those looking to establish a position in the company, I'd begin with a small one and gradually add to that position as earnings announcements and dividend dates approach. If Ford can surpass estimates on both the EPS and revenues sides, we could begin to see the stock sustain trading at levels between $11.50/share and $13/share, which would represent a premium of about 25% to current trading levels.
General Motors (GM): General Motors trades in a 52-week range of $19.00 (52-week low) to $32.08 (52-week high) and closed at $21.48/share on Wednesday, June 20th. Shares have dropped nearly 1% over the last five trading sessions, and shares were down 1.2% today on the news that General Motors has only sold 17 of the 89 properties scheduled for sale as part of its 2008 bankruptcy. In my opinion, the silver lining is the fact that the entire real estate market has turned around as much as some would have hoped, and these numbers are a simple product of the real estate markets non-demand at the moment. If for any reason over the next two quarters General Motors is able to see a spike in the sale of the remaining properties, a short-term pop in the stock could occur. That said, General Motors looks affordable at these levels considering it trades at a P/E ratio of 6.47. Even though the stock has been flat for most of the year, the company could surpass earnings in both the second and third quarters.
Analysts are expecting General Motors to earn $0.86/share on revenue of $38.61 billion for the June 2012 quarter. Even though three of the last four quarters have demonstrated very nice EPS growth, investors should still remain cautious as the U.S.-based auto industry hasn't fully recovered from the 2008 economic crisis. For those looking to establish a position in the company, I'd begin with a moderate one and gradually add to that position as earnings announcements approach. If General Motors can surpass estimates on both the EPS and revenues sides, we could begin to see the stock sustain trading at levels between $23.50/share and $26/share, which would represent a premium of about 21% to current trading levels.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
