The auto industry continued to do well in 2017, and both Ford Motor (NYSE: F) and General Motors (NYSE: GM) were able to continue their runs of strong sales years. Unfortunately, shareholders haven't entirely benefited from the favorable business conditions that Ford and GM have seen, and recent geopolitical tensions have raised concerns about their ability to keep doing business effectively around the world.
Value investors have looked at Ford and General Motors for a long time to see if they're smart value picks at current prices. So far, the stocks haven't lived up to their potential, but those who like the industry's prospects still want to know which of the two auto giants is a smarter pick right now. Let's take a closer look at Ford and General Motors to see what some key metrics have to say about which one looks more promising.
Valuation and stock performance
Ford Motor and General Motors haven't done much for their investors lately. GM is the winner of the two, with gains of 3% since March 2017. By contrast, Ford stock has lost 7% of its value over the same period.
Image source: General Motors.
Even though GM has done better than Ford, the larger company still holds a valuation advantage when you compare it to the Blue Oval on traditional measures. Tax reform has made it difficult to compare backward-looking trailing earnings multiples, but when you incorporate forward-looking projections in the near future, GM's advantage becomes clear. The stock trades at less than six times forward earnings estimates, compared to a forward multiple of more than seven for Ford. That might not seem like a big deal, but GM's combination of share price momentum and slightly cheaper valuation gives it the edge here.
Ford and GM both have high dividend yields, but here, Ford is the winner. Its yield exceeds 5.5%, compared to General Motors and its roughly 4.1% dividend yield currently. Moreover, Ford's yield doesn't even include a special dividend that it made at the beginning of the year, adding even further to its total effective yield.
From a dividend growth perspective, Ford stands out as well. Having survived without going through a bankruptcy filing in the aftermath of the recession of 2008, Ford suspended its payout briefly but was able to restore it more quickly than its peers, and dividend growth has come more quickly. GM has made a middling effort to catch up, but it still lags behind its rival. One offsetting characteristic is that General Motors has been friendlier about doing stock buybacks, while Ford has been reluctant to follow suit. Nevertheless, for income investors, there's no substitute for dividends, and Ford gets the nod on the income front.
Growth prospects and risk
Both Ford and General Motors face many of the same industrywide threats, with innovations like ridesharing and autonomous vehicles requiring new ways of thinking as competition approaches from a new corner. Yet Ford is going through some challenges of its own that have required additional handling. Earlier this year, Ford said it expects lower profits in 2018, listing pressures like higher commodity costs, rising interest rates, and the need for spending on initiatives like autonomous vehicles and mobility alternatives. Yet the automaker knows that it needs to work harder on its own efforts to rein in unnecessary costs even as it strives to catch up in key areas. The fact that Ford hasn't been able to improve its bottom line even when sales picked up the pace in recent years is problematic for investors in the auto giant.
General Motors has aimed to take advantage of some of Ford's issues. In China, GM has emerged victorious, with huge sales gains in early 2018 compared to massive declines in sales volume for Ford. The automaker hasn't shied away from doing things specifically for the Chinese market, including branding that's directed solely at China and reinventing models that had largely run their course in other parts of the world. Worldwide, General Motors is in a good place as it aims to launch upgrades in the key truck and SUV segments over the next couple of years to preserve its market share gains over Ford and other competitors. Even the return of strong performance from the GM Financial unit bodes well for the automaker's prospects ahead.
General Motors has been able to hang on to its performance advantage over Ford. With the Blue Oval still working to shore up key issues that GM seems already to have figured out, investors can feel more confident about General Motors' prospects looking ahead through 2018 and beyond.
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