Ford Investors: Don't Worry About GM

DETROIT (TheStreet) -- Worried that the General Motors IPO will diminish the value of Ford(F) shares?

Don't be, says UBS analyst Colin Langan in a July report, which looks at the impact on the stock price of a company's No. 1 competitor in the months following an IPO.

Historically such competitors are not disadvantaged by large IPOs in the sector, Langan wrote. "We found that on average, during the three and one months preceding an IPO, the main competitor experienced above-market returns, outperforming the S&P 500 by 1.8% and 2.9% respectively.

" Our findings are in contrast to investor concerns and highlight that markets are more efficient than some investors anticipate," he said.

Among the past IPOs Langan reviewed was the $5.5 billion UPS(UPS) offering in November 1999. In the six preceding months, FedEx(FDX) shares fell by 22%. In the year following, FedEx shares gained 7%.

The offering occurred during a time when the offering was pitched as an e-commerce play, but multiples for UPS and FedEx contracted as the air went out of that bubble, so both stocks were underperforming the S&P 500. Nevertheless, "There is little evidence that investors reallocated their resources from FedEx to invest in UPS," Langan wrote.

In the case of the March 2008 Visa(V) $17.9 billion IPO, shares in MasterCard(MA)rose 39% in the six months prior and 40% in the three months afterwards. During much of the period, both stocks outperformed the S&P. "There is no clear evidence that MasterCard investors were negatively impacted by Visa's IPO," Langan wrote.

Ford Executive Chairman Bill Ford said last week that he believes some large investors could diversify auto sector holdings from Ford to GM, but that ultimately the companies' performance will determine their stock price.

Meanwhile, Jeff Sands, managing director at O'Keefe & Associates, told TheStreet that Ford investors must diversify. It's "almost a requirement to shed some," he said.

-- Written by Ted Reed in Charlotte, N.C.

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