Auto Sector Emerges As U.S. Retail Sales Leader

Includes: CARZ, F, GM
by: Julie Young

Retail industry sectors finished 2012 with sales of $415.7 billion in December. December U.S. retail sales were 0.5 percent higher than November and brought total sales for the year to $4.9 trillion. At $4.9 trillion, retail sales improved 5.2 percent from 2011. Per the table below, year-over-year annual retail sales growth has averaged 2.7 percent since 2006.

In 2012 the automotive sector reported the strongest main stream sector retail sales growth, increasing 7.9 percent. Since the auto industry's bailout, the sector has averaged 9.8 percent annual sales growth, mainly due to a redirected focus on fuel efficient vehicles.

Growth in the U.S. auto sector has been led by Ford and General Motors, which remained U.S. publicly traded companies following the sector's bailout in 2009.

Ford and General Motors reported leading U.S. sales growth in December and remain primary stock investments in the recovering auto industry.

Ford (NYSE:F)

Ford will report fourth quarter earnings on January 29, 2013.

In December, Ford sold 212,902 vehicles, finishing the calendar year with sales of 2.2 million, 4.7 percent higher than 2011. Sales for the company were led by the Ford F-Series at 68,787 and the Ford Focus at 22,604. Ford also remains a leader in fuel-efficient innovation. Sales for its Ford Focus gained 40 percent in 2012, increasing from 245,922 in 2012 to 175,717 in 2011. The company's new C-MAX hybrid, which achieves 47 mpg, had record sales according to Ford. At 13,309 vehicles sold, the car had the fastest sales start of any hybrid vehicle in the industry.

The company has projected fourth quarter 2012 pre-tax operating profit of $2.5 billion. At $2.5 billion, total pre-tax operating profit for 2012 will closely match 2011's $8.8 billion. Bloomberg analysts estimate fourth quarter 2012 earnings to be $0.26 per share.

General Motors (NYSE:GM)

General Motors will report fourth quarter earnings on February 15, 2013.

General Motors sold 245,733 light vehicles in December finishing the calendar year with sales of 2.6 million, 3.7 percent higher than 2011. The Chevrolet Silverado led light truck sales for the company and the Chevrolet Cruze led car sales. In December the Caprice, Volt and Terrain showed the greatest year-over-year sales volume increases, improving 148 percent, 72 percent and 49 percent, respectively. Increased sales of fuel efficient cars, such as the Volt, also helped the company to reach a milestone, selling a record breaking one million vehicles in the U.S. with EPA-estimated fuel efficiency of 30 mpg or better.

In 2011 GM reported net income of $7.6 billion. Fourth quarter 2012 earnings are expected to closely match the company's fourth quarter 2011 results. In fourth quarter 2011 General Motors achieved net income of $0.5 billion with EBIT-adjusted of $1.1 billion. Bloomberg analysts estimate fourth quarter 2012 earnings to be $0.51 per share.

Both Ford and General Motors have intrinsic value price targets slightly above their current trading price1. At $14.30, Ford is trading near its price target of $15.03. General Motors is also trading near its $32.15 price target at $30.60.

In addition to appealing price targets, both companies have outperformed in their peer groups. Per the table below, Ford and GM have greatly outperformed the Dow Jones U.S. Total Market Index and Dow Jones Consumer Goods sector index. Positive fourth quarter earnings announcements could push first quarter values higher making both companies leading investment options for investors seeking U.S. auto stock diversification in 2013.

1 The target stock price is based on Bodie, Kane and Marcus' intrinsic value formula. The intrinsic value formula discounts the projected one-year value by the risk-free rate on the one-year Treasury note plus the stock's beta times the market's risk premium. The market risk premium assumes stock market appreciation in 2013 to be similar to 2012 and is based on Dow Jones U.S. Total Market index return.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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