This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

General Motors or Ford: Which to Buy?

NEW YORK (TheStreet) -- With all of the challenges facing General Motors (GM - Get Report), I haven't exactly been the most optimistic investor in town. I've expressed that not-so-bullish opinion several times, usually receiving quite a bit of pushback from others.

But that's OK, as long as I help at least one investor. I'm not necessarily saying don't buy shares of GM. I'm definitely not saying to short it. I just think a lot of investors are discounting the obstacles at GM, calling the stock a buy solely because it has a low valuation.

But the stock has always had a low valuation. So has another similar stock, Ford (F - Get Report).

Ford trades at a trailing 12-month price-to-earnings ratio of 9.1 and a forward 12-month P/E ratio of 8.4, while GM trades at 14.6 times trailing earnings and a slightly cheaper 7.2 times forward earnings.

While GM is technically cheaper, Ford is pretty darn cheap, as well. Furthermore, GM should be cheaper than Ford, considering the recalls and criminal investigations. 

The two stocks are similar. For starters, each company is led by a respectable CEO. Ford has Alan Mulally, a logical, battle-proven leader who steered Ford clear of bankruptcy in the Great Recession.

Then there's Mary Barra, CEO of GM. Barra took over as CEO earlier this year and does not have the pedigree that Mulally has. But Barra has proven that she can handle being in the spotlight under immense pressure -- and still do the right thing.

Each company pays a handsome dividend. Ford's dividend yields 3.1%, GM's 3.4%.

And although GM has a more established base in China, both companies are benefiting from the expanding middle class and strong auto sales in the country. The similarities don't end in Asia.

Both automakers are seeing improvements in their European operations, while U.S. auto sales continue to hum along, pushing ever closer to the coveted 16 million seasonally adjusted annual rate, or SAAR.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
F $15.53 0.00%
GM $35.01 0.00%
AAPL $125.80 0.00%
FB $77.56 0.00%
GOOG $530.80 0.00%

Markets

DOW 17,928.20 -142.20 -0.79%
S&P 500 2,089.46 -25.03 -1.18%
NASDAQ 4,939.3270 -77.6020 -1.55%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs