Auto Stocks Struggle Despite Strong Sales
Despite record car sales over the past year, Wall Street is seeing auto stocks tank due to factors such as rising interest rates and the struggling Chinese economy, which is the largest market for automobiles.
Over the past year, Ford (NYSE:F) has seen its stock decline 19%, while it is down 12% so far for the new year. General Motors (GM), too, is down 11% over the past year and down 8% year-to-date.
Warning! GuruFocus has detected 3 Warning Sign with F. Click here to check it out.
The intrinsic value of F
U.S. light vehicle sales for 2015 were 17.5 million, with Ford, Chevrolet and Toyota as the three top-selling brands for the year, according to Automotive News' sales scoreboard.
It seems auto parts companies have fared better in terms of their stock prices. For example, LKQ Corp. (LKQ) has held steady over the past year, declining 2%, though the company has been down 11% year-to-date. Pep Boys (PBY), which recently accepted a buyout offer from activist investor Carl Icahn (Trades, Portfolio), has risen a whopping 100% over the past year.
David Tepper (Trades, Portfolio), who is currently making news with his demand for TerraForm Power (TERP) to release its books, holds 13.5% of his portfolio in GM as his largest position. In February 2015, Tepper made the rare activist move to push for representation on GM's board, to which GM responded by buying back $5 billion in exchange to drop the bid.
GM is trading at 11x earnings at $29.28 as of Friday morning. The Peter Lynch earnings line indicates the automaker may be a good value at the current price, as the earnings line is at $40.80 based on third quarter earnings.
As a long-time shareholder, Tepper may be prepared to ride out the decline in GM's stock price. In October 2015, Tepper appeared on CNBC's Squawk Box, praising CEO Mary Barra for her work at the company, and said GM is a leverage to the economy.
"I think it's really got its act together, and to tell you the truth, I don't think the market is really recognizing it yet," Tepper said.
It also appears non-U.S. automakers are struggling in the market. Toyota Motor Corp. (TM) is down 11% for the past year, and Honda Motor Co. (HMC) is down 6%.
David Herro (Trades, Portfolio), portfolio manager of the Oakmark International Fund, owns positions in several auto stocks, including Toyota, the fourth-largest position as of the third quarter, Honda, Bayerische Motoren Werke AG (XTER:BMW) and Daimler AG (XTER:DAI).
When GuruFocus spoke with Herro in March 2015, the investor said the advantage to Japanese exporters like Toyota and Honda is the automakers are huge beneficiaries to emerging markets. Both are "good pockets of opportunity" that offer ways of investing in EM indirectly.
With the exception of Honda, Herro upped his stakes in the three other top auto holdings during the third quarter.
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This article first appeared on GuruFocus.
Warning! GuruFocus has detected 3 Warning Sign with F. Click here to check it out.
The intrinsic value of F
