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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. 

Must Read: China Revives Neglected Plan to Link the Hong Kong and Shanghai Stock Markets

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.

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F $14.53 0.00%
GM $36.37 0.00%
AAPL $117.81 0.00%
FB $105.45 0.00%
GOOG $750.26 0.00%


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