Both Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) have been in the headlines lately. And while many investors may lump these two together, they are seemingly growing more different by the day. In that sense, does it make more sense to buy GM stock or F stock?
Shares of General Motors are down 3.6% year-to-date, while Ford is down 9%. Both are struggling in 2017, but over the past 12 months, GM stock has vastly outperformed Ford, as it is up 7.3%, while F stock is down 18.3%.
But there’s a reason for this disparity and it’s a simple one at that: GM is doing better.
General Motors Has a Better Business
General Motors has beat both earnings-per-share and revenue estimates for seven straight quarters. For its part, Ford has actually beat revenue estimates for seven straight quarters too. But it has missed EPS estimates three times in that span. Plus, the earnings quality is different.
In March, Ford cut its first quarter EPS guidance to 30 cents to 35 cents, below the 47 cent per share consensus. Ultimately, it beat by 3 cents per share, reporting earnings of 39 cents per share. But this was on lower expectations.
Conversely, GM handedly beat EPS estimates and it grew revenue 10.5% last quarter. Additionally, in January General Motors said it expected full-year earnings of $6.00 to $6.50. At the time, analysts only expected EPS of $5.73. Analysts still only expect EPS of $6.10. If history is any indication, GM will continue to blow through these estimates.
Management also announced a $5 billion share repurchase plan at the time. Given GM’s market cap of $48 billion, that is a significant figure.
GM took market share and grew margins last quarter. Ford lost market share and saw automotive margins and cash flows decline. Finally, F is outing CEO Mark Fields and naming a new CEO.
This can be viewed as good news. However, I would rather bet on the horse that has an established management team and is doing well.
GM Stock Is More Attractive Too
If Ford is doing worse, its valuation must be way more attractive, right? GM stock trades with a trailing price-to-earnings ratio of 5. On a forward basis, it trades at 5.5x earnings.
Ford? It trades with a trailing P/E ratio of 11.7 and a forward P/E ratio of 6.6. F is expected to post a year-over-year decline in earnings and slight growth in 2018.
By management’s guidance, GM will grow earnings this year. In 2018 — especially depending on its buyback — General Motors may have flat to slightly lower EPS growth. Not great, admittedly. But it has a better valuation and better earnings growth than Ford.
How about the dividend? Ford does win here, with a 5.4% yield vs General Motors’ 4.5% payout.
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On the charts, neither have a remarkably beautiful setup — they certainly aren’t like Tesla Inc (NASDAQ:TSLA). In GM stock’s case, shares are sitting right near the vital support level of $32. Investors willing to take a stab could do so here and use a stop-loss below this level. It’s got a nasty downtrend it’s trying to fight through too.
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Ford looks more grim. While it too is sitting on a support line near $10.75, below doesn’t offer much comfort. Shares have been under heavy pressure, adding to the stakes. Below this level, F stock might find buyers near $10.50. But if they don’t materialize, there’s really no telling how low it could go.
The Bottom Line for General Motors
GM stock offers investors a low-risk buy near current levels. It has a buyback, superior growth and solid track record. While GM’s yield is lower than that of F, it’s still a big payout at 4.6%.
Investors certainly don’t have to buy General Motors. But if they’re looking to own an automaker, this is certainly the better of the two.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held no positions in any security mentioned.
