America is back in the garage in a big way.
Last week, we were treated to news of stellar earnings from two completely homegrown auto giants — Ford (F) and General Motors (GM). Both companies impressed Wall Street with their respective second-quarter fiscal results.
In the case of Ford, the company easily accelerated past expectations on both the top and bottom lines. Revenue for the April-June quarter came in at $38.1 billion, up a very impressive 14% over the same period a year ago. It also bested Street estimates for revenue of $34.9 billion. As for the bottom line, here too Ford revved higher, posting earnings per share (excluding one-time items) of 45 cents per share, well above the consensus estimate for 37 cents.
Ford cited strong sales in the U.S. of its F-Series truck line — which have spiked some 22% through the first half of 2013 — as well as increased sales in the all-important China market as the reasons for its excellent results. Ford also did something Wall Street really likes to see: It raised its profit and sales forecasts for the full year.
In addition to the strong truck sales, Ford also is hitting the mark with its smaller cars and even its hybrid models. In fact, Ford sold more hybrids in Q2 than in any other quarter, and that was due to the popularity of its new C-Max hybrid models.
Not to be left in the dust, GM also posted outstanding second-quarter numbers. Revenue for the April-June period came in at $39 billion, which represents a 4% increase over revenue in the same quarter last year. The consensus estimate on the top line was $37.7 billion. As for earnings, GM posted EPS (excluding one-time items) of 84 cents per share. And though that number was below last year’s 90 cents per share, it was well above the 75 cents expected by Wall Street.
Like Ford, GM saw strong U.S. pickup truck sales in 2013, with sales increasing some 23% in through the first six months of the year. Unlike Ford, however, GM continues to struggle on the global front, with declining sales in its international operations division. By contrast, Ford saw the best-ever profit from its Asian division, with a 47% sales bump in China so far in 2013.
For investors contemplating which stock has the most upside going forward, the Asian factor definitely is a consideration. If GM fails to execute as well as Ford in the booming China market, it could fall well behind Ford in terms of earnings momentum.
Now, on technical front, there’s not a whole lot of difference between the two auto giants. The one-year charts here of F and GM are nearly identical, and both stocks are now forming base patterns at their respective 52-week highs.
For investors, the answer to the question of which auto stock to buy actually might be “both.”
If you believe in the improving global economic thesis, there’s plenty of upside for both Ford and GM going forward. Also, if you think the sales spike in U.S. trucks — which is largely a function of an improving housing sector — will continue, then both Ford and GM are good buys.
In terms of potential drivers later this year, GM does look to be in good shape thanks to a planned rollout of several new truck models, as well as the all new 2014 Chevrolet Corvette (a release I am personally looking forward to).
However, the big obstacle for GM remains those international sales. According to a recent note to clients by Barclays auto analyst Brian Johnson, “The GMIO (GM International Operations) headwinds indicate that GM’s ex-China operations may remain challenged for some time.”
If GM fails to solve this problem, and if Ford continues to fire on all cylinders internationally, Ford shares could prove to have a little more gas in the tank.
As of this writing, Jim Woods did not hold a position in any of the stocks mentioned here. He does, however, own both a Ford F-Series pickup and a Chevrolet Corvette.