Should recent downgrades of Ford Motor (F) stock and General Motors (GM) stock scare investors away? Not necessarily, as in my opinion there is good value here in these automotive names. All in all, I am bullish on F stock and GM stock because Ford and General Motors are very reasonably valued and offer decent-to-attractive dividends. Furthermore, the challenges that Ford and General Motors face are worth noting but may have been largely priced into the shares already.
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Ford Motor and General Motors are well-known Detroit-based automakers. While they’re headquartered in the U.S., these two companies also sell vehicles in China, which is a difficult market to penetrate.
Moreover, Ford and General Motors have both had to deal with high interest rate policy in the U.S. during the past couple of years. Changes are afoot, however, and value-focused investors could be in the driver’s seat with F stock and GM stock in the coming quarters.
Harsh Stock Downgrades for Ford and General Motors
Here’s a news item that could cause consternation for some automotive stock buyers. Morgan Stanley (MS) analyst Adam Jonas recently downgraded Ford stock from Buy to Hold and slashed his price target on the shares from $16 to $12. Meanwhile, Jonas downgraded General Motors shares from Hold to Sell and reduced his price target on the stock from $47 to $42. Additionally, the Morgan Stanley analyst lowered his view of the U.S. auto industry from “attractive” to “in-line.”
Jonas cited several concerns, including rising vehicle inventories as well as vehicle affordability issues. Additionally, the Morgan Stanley analyst pointed to issues in China, where post-pandemic growth has been uneven.
These are valid concerns, but in a highly efficient financial market, surely the U.S. automotive industry’s challenges have already been priced into the shares to a certain extent. Looking at the one-year charts of Ford stock and General Motors stock, we can see that F stock is down over the past 12 months and GM stock has stalled since June. Let’s now take a look at the valuations and yields of these two car manufacturers.
Ford and General Motors Comparison on Valuation and Yield
I like both Ford stock and General Motors stock but for different reasons.
General Motors has a GAAP-measured trailing 12-month price-to-earnings (P/E) ratio of 5.19x, which is quite attractive when compared to the sector median P/E ratio of 18.74x. Ford’s P/E ratio is 10.86x, which is also more favorable than the sector median, but General Motors appears to be the more enticingly valued of the two automakers on the basis of P/E.
However, while General Motors offers a decent forward annual dividend yield of 0.87%, it lags slightly behind the Consumer Cyclical Sector average dividend yield of around 1%. Meanwhile, Ford easily wins in this category with an eye-popping annual dividend yield of 7.15%.
Lower Interest Rates Should Help Ford and General Motors
Finally, adding to my bullish arguments for both F stock and GM stock, consensus is for U.S. interest rates to drop even more before the end of the year. This should support the automotive sales market and boost results for Ford and GM.
Bank of America (BAC) analyst John Murphy summed up this argument concisely. He explained, “We expect lower rates to be supportive of new vehicle sales which we are already constructive on due to pent-up demand and incremental mass market model launches.” If Murphy’s optimism turns out to be well-founded, then fellow analyst Adam Jonas may end up having to reverse his downgrades and price-target reductions for F stock and GM stock.
Is Ford Stock a Buy, According to Analysts?
On TipRanks, Ford stock comes in as a Hold based on four Buys, 10 Holds, and one Sell rating assigned by analysts in the past three months. The average F stock price target is $13.19, implying about 23% upside potential. Click on the image below to learn more.
If you’re wondering which analyst you should follow if you invest in Ford, the most accurate analyst covering the stock (on a one-year timeframe) is Michael Ward of Benchmark Co.. Ward also has an overall success rate of 70% and average return of 7.84% per rating.
Is General Motors Stock a Buy, According to Analysts?
On TipRanks, General Motors comes in as a Moderate Buy based on nine Buys, four Holds, and three Sell ratings assigned by analysts in the past three months. The average GM stock price target is $56.83, also implying about 23% potential upside, just like for Ford stock.
If you’re wondering which analyst you should follow if you want to invest in General Motors stock, the most profitable analyst covering the stock (on a one-year timeframe) is Dan Levy of Barclays (BCS), with an average return of 24.86% per rating and a 67% success rate. Click on the image below to learn more.
Conclusion: Should Investors Consider Ford Stock and General Motors Stock?
Detroit’s famous automakers are definitely facing challenges – that’s clear. Ford and General Motors will have to contend with slow growth in China and inventory-related issues. On the other hand, if interest rates continue to fall, this should provide a tailwind for GM stock and F stock.
In my view, existing challenges are likely already priced into both stocks, and it’s possible that Ford stock may have been beaten down excessively. At the same time, Ford and General Motors are enticing for different reasons, based on valuation and dividend yield. Therefore, depending on a given investor’s particular preference for value and/or income generation, either F stock or GM may be the best fit for their portfolio. I am bullish both stocks at today’s prices.
