The question here for investors is which — if any — of the two auto giants deserve your attention?
From a technical perspective, both Ford and GM have seen a major deceleration in their respective share prices. Ford shares are down 13.2% during the past three months (through May 2) while GM shares are just fractionally better, down 12.4% over the same period. Both stocks recently skidded below their respective 200-day moving averages, a clear sign that investors are getting out of the driver’s seat in both stocks.
Some value-oriented investors I’ve spoken with of late think the recent decline in both Ford and GM makes them a screaming buy at current levels. They cite Ford’s very low P/E ratio of just 2.21, as well as its dividend yield of 1.7%, as a reason to buy the stock now. GM doesn’t pay a dividend, but it too trades at a low P/E of only 4.98. To be certain, you are getting a lot for your money with both of these stocks right here, but valuation alone isn’t a reason to get back in either stock.
What could be the bigger reason to own one or both of these stocks is the growth of their respective presences in China.
GM already is the No. 1 foreign automaker in China in terms of sales, and recently the company announced plans to increase its number of dealerships in the country by 20% this year. That would bring GM’s dealer network in China to 3,500 stores, up from 2,900 at the end of 2011. By comparison, the company’s U.S. network of dealerships totals 4,400. GM also plans to build additional factories in China, and it is looking to expand its Cadillac luxury brand in the country.
Ford also is broadening its Chinese footprint, as the company just announced plans to build its fifth car factory in eastern China as part of a plan to double its production capacity and sales outlets in the country by 2015. When the expansion is complete, Ford will says it will be capable of building 1.2 million passenger cars a year in China — nearly half the number it built last year in North America.
If you are an investor willing to fasten your seatbelt on both Ford and GM shares for the next several months or more, your patience could be rewarded handsomely by building a position in either stock at current levels. However, if you are looking for a trade, I’d wait for the bears to get exhausted — and for the stocks to take their respective drives back above the 200-day average — before getting behind the wheel.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.