Is Ford Benefitting From GM's Problems?

| About: Ford Motor (F)
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The various vehicle recalls General Motors has had to initiate over the past few months has had a detrimental impact on its stock.

In some ways, GM's travails seem to be helping the sentiment towards the stock in its main domestic competitor, Ford.

GM's problems are not the only reason to own Ford here. The shares are cheap, the stock has an over 3% yield and its growth prospects are solid.

The massive vehicle recalls that General Motors (NYSE:GM) has had to initiate over the past few months continues to garner headlines. Given the size of the recalls and the usual suspects (The press, plaintiff attorneys, congressional gadflies, etc. …) pumping the story of the moment, this is incredibly predictable.

I continue to hold and have even added a bit to my stake in General Motors, as I believe the story is overblown and will eventually pass as the herd moves on to the next hot topic of corporate malfeasance. Although tragic, the defective part in question has only been identified (and not for the lack of trying by the media and lawyers) in 13 deaths, of which 12 of the victims were either not wearing their seat belt and/or driving under the influence - apologies to any if this is interpreted as callous to the victims as that is not the intention.

There have been myriad questions around this fiasco including when did the executives know about the defect? Why weren't the recalls initiated sooner? And of course, did the government know about any of these problems when it was General Motors biggest shareholder? To me, other than when will this ordeal end for General Motors; the biggest question for investors is whether General Motors' current travails are helping rival Ford (NYSE:F).

I think the answer is both yes and no. The press the recall problems are generating does not seem to be affecting monthly sales of General Motors' vehicles domestically according to the sales reports that have been released since the problem first became known. This seems logical as few if any new vehicles are subject to these various recalls and this is a "used" vehicle issue.

However, judging from the movements of both auto manufacturing stocks over the three months since this problem started to get traction, Ford has benefited from a shift in sentiment among the two equity choices when it comes pure American car manufacturers. Not only has it easily outperformed General Motors over the past 90 days but has also beat the S&P 500 over that time frame.

The improved sentiment by way of comparison should continue as long as this recall story has legs. In addition, it is not the only reason to own Ford here. Domestic auto sales continue to improve from the tepid levels in the first three months of the year driven by the horrid weather throughout the country this year.

The company is also ramping up strongly in China. It is rapidly approaching 100,000 vehicles/month level as sales are rising some 30% Y/Y in 2014. Things also continue to slowly improve in Europe. Finally, it has myriad new launches in the next twelve months including its lauded all new aluminum bodied F-150. The loss of 700 pounds of weight will improve fuel economy, towing capacity, payload capabilities, and stopping distance for drivers. It is also a very high margin vehicle with many times the profits per vehicle of a car.

Ford shares are cheap at under 10x trailing earnings with a dividend yield north of three percent (3.1%). The stock also has five-year projected PEG of under 1 (.95). Although I own both auto stocks and like each of their long-term prospects, Ford is probably the one to own over the next few months. BUY

Disclosure: I am long F, GM. 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.