We’ve argued before that GM stock is a buy. The underlying business is strong and the recall costs have probably been more than baked into the GM stock price. After all, you’re supposed to buy when there’s blood in the streets, and GM has certainly been bloodied.
The punishment doled out to GM stock makes the valuation sure look compelling, fetching 9 times forward earnings. Like Ford stock, that makes GM stock much cheaper than the broader market even though it has stronger growth prospects. You’ve also got to like that 3.3% dividend yield.
At the same, Ford stock also looks pretty good. Shares are cheap, the underlying business is likewise strong, and the dividend of 3% adds some nice kick to the total return.
It’s a tough call, but Ford stock looks like the (slightly) better investment. That’s based almost entirely on recall risk. GM should theoretically have more potential upside because of that risk. Ford stock is less of a gamble.
Stocks are like cars — safety is more important than excitement. That gives Ford stock an edge over GM stock.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.