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GM and F, Un-loved and Under-owned

|Includes: F, General Motors Company (GM), HMC, TM, TTM

Next week will start the earnings season for the two largest US automakers.  While Q1 earnings releases were clouded by the Japanese disaster (and the rapid rise in oil prices), this quarter contains far less uncertainty in contrast.  Yes there is a "perception" that the automakers have too much truck inventory, but compared to last quarter this problem is miniscule.

Earnings and sales have actually been increasing vs. last year, and the companies are still operating in a sub-normalized environment.  While the static on the street is whether the industry produces 12.5 or 13 million vehicles in the US this year, the clearer picture is that BOTH GM and F have managed to right-size their operating infrastructure (with and without government help).  This gives both of them TREMENDOUS upside leverage to any future growth, and the analysis will soon shift to when that growth is likely to happen. 

As with any industry, autos are cyclical; but investors shouldn't wait until the real growth in the economy actually happens to move on these investments.  With price-earnings ratios solidly in the single digits and forward momentum positive, the risk of an upside "surprise" is more likely than a trend reversal. 

Finally, be aware of sentiment shift with GM in particular and F to a lesser degree.  The time to buy is BEFORE it becomes cool or hip to invest.  At this point, many still (incorrectly) believe GM is on the verge of a second bankruptcy or that Ford's balance sheet is hampered by a mountain of debt.  Neither of these perceptions are even remotely true and when the trade becomes obvious to all, the stock prices of both of these companies will be well north of where we are today.

Our belief at AssetInflation.com is that the inflection point has arrived and the auto industry is close to shifting out of neutral and rapidly into gear.  We believe once this realization hits the common investor, that GM will be trading north of $50 and Ford beyond $20. 

Simply stated, both GM and F are un-loved and under-owned.  Not too many expect much from either company.  The question isn't "if" this will change in the future, rather "when" will it change.  We believe this next few weeks might shed some light on when, and our opinion is that we would rather be invested than not at this moment in time.