Spoiler alert … I prefer General Motors (NYSE:GM) stock over Ford (NYSE:F) stock right now. But before you judge my choice, know that I would own both here and will share the levels that matter for either.
The auto manufacturing sector is on the cusp of massive changes. The world is trying to make the shift from internal combustion engines (ICE) to electric cars. Although we’ve had them since 1890, it took Tesla (NASDAQ:TSLA) to popularize them. But for now, electric cars still are but a sliver of the ICE market, so the battle is far from over.
Then there is another trend in autos that is sure to be the future, and that’s autonomous driving. While the impression is that it’s just around the corner, true autonomy is decades away. Meanwhile, we will likely have several layers of driver assist features and our manufacturers like General Motors and Ford are already on board.
Even tech companies got into the fray. In fact Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is the parent company of Waymo, which is arguably the one that will be first to bring autonomous vehicles to market.
So Which Is the Better Bet: GM or Ford Stock?
Call me wish-washy, because I like both but for different reasons time frames.
Fundamentally, they are both incredibly cheap, as they sell at around 0.3 times sales. For absolute comparisons, Apple (NASDAQ:AAPL) and Tesla sell for 3x and 2x sales. Moreover GM and Ford pay a hefty dividend of 4% and 6%.
While both are cheap, GM is my clear winner right now. It sells at only a 5.7 trailing price-to-earnings ratio, compared to Ford stock’s trailing P/E of 12.6. For some reason, Wall Street is now willing to pay more than double for F stock what it would for GM stock, and I disagree with them.
Ford is vulnerable short term because of the gap below. The stock soared on good results in its last earnings report, but usually traders likes to fill open gaps. Not all of them of course but this one is too close and large to ignore here.
Nevertheless, if Ford stock falls closer to $9.60 and covers it I’d go long it. I can then buy the shares outright or use the options markets where I can leverage time and reduce the out-of-pocket expenses for the trade.
GM also has a gap, but after a hideous -4% Wednesday and some more today, it’s almost completely filled. Besides, this gap is but a fraction the size of the one that Ford has, so it’s less of a magnet. Wall Street is more likely to ignore it open for longer, if not forever.
Other Current GM Stock Plusses
Another reason I prefer GM over Ford stock here is the leadership.
Since Mary Barra took the GM helm, she has made the company competent at navigating a barrage of obstacles. They are thereby faster to make the moves they need to make to stay ahead of the trend. They’ve even recently done so knowing they risk negative repercussions from the White House. I have no doubt that Ms. Barra has proven herself worthy of the risk. So for the long term, I am more comfortable owning GM stock knowing this team is in charge.
But there are short-term lines that matter for General Motors stock. The zone at and just below $35 needs to hold and serve as a base for bulls to mount a bounce rally. The S&P 500 technically is in danger this week of losing an important neckline. If lost, it could trigger a 5% market-wide correction and that will test the GM support. Size the risk appropriately, knowing this.
To state it simply, both General Motors and Ford are attractive here. I prefer GM over F stock, but not by much, and it’s a matter of technical preference.
Wall Street experts agree with me, since most analysts have Ford as a hold, as it trades at their average price target. Meanwhile they have GM as a buy and it trades well below its average target.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
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