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Ford Is a Buy, GM Is a Hold, Says Contrarian Auto Analyst

Stocks in this article: F GM

DETROIT (TheStreet) --S&P Capital IQ analyst Efraim Levy is taking a contrarian view, picking Ford (F) over General Motors  (GM) when some prominent experts have been going the other way.

Jim Cramer said Monday to buy GM because of the lack of clarity regarding the future of Ford celebrity CEO Alan Mulally. UBS analyst Colin Langan recently picked Ford over GM because, he said, GM is now benefiting from introduction of its 2014 Silverado.

GM shares lately have benefited from the perception gap. Shares are up 34% this year and down 0.36% over the past five days. Shares closed Wednesday at $16.62, up 57 cents. Ford shares are up 28% for the year and down 2.41% over the past five days. Shares closed Wednesday at $16.62, up 6 cents.

On Tuesday, GM said its November sales rose 13.7%, while Ford November sales rose 7%. Ford said it will cut production from 784,000 to 770,000 through March to better match inventory to demand. Ford shares fell 3% on Tuesday, while GM shares fell 2%.

Nevertheless, in notes issued after sales figures were released on Tuesday, Levy rated Ford a buy and GM a hold. For Ford, he raised his full-year earnings estimates to $1.67 a share in 2013 and $1.92 in 2014, "including the impact of Ford's expectations for lower Q1 vehicle production." He left his target price at $19, 10 times his EPS estimate.

For GM, Levy left his target price at $39. He wrote that is "concerned about rising vehicle inventories." GM said its inventory increased to 96 days, while Ford's grew to 89 days.

In an interview, Levy said the two automakers have "a lot of similarities and both benefit from U.S. growth and global growth." But he noted that in determining his ratings, his first concern is valuation. He said GM is nearly at his $39 target price, while Ford has not reached his $19 target; the prices are based on earnings estimates.

Moreover, Levy said he discounts the speculation that Mulally could leave for Microsoft  (MSFT). "I'm in the camp that says Alan Mulally is not likely to go to Microsoft," he said. "But even if he does go, he's done a good job instituting a culture that will carry over, and succession will likely continue around what he has implemented."

Levy noted that on Tuesday he raised his Ford estimate by 4 cents for 2013 and by 7 cents for 2014. He said he might have raised it more but for the announcement of production cuts. "I do buy into the concept of not devaluing a brand by producing too much," he said. In the short-term, however, reduced production means fewer vehicles to sell to dealers.

Written by Ted Reed in Charlotte, N.C.

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