What's wrong with Ford and GM stock?

US auto sales continue to improve this year, yet shares of the country's biggest carmakers are lagging.

By TheStreet Staff Mar 13, 2013 12:34PM

thestreet logoMan changing oil copyright Ron Chapple, Getty ImagesBy Ted Reed

 

Despite steadily rising U.S. auto sales, shares in Ford (F) and GM (GM) have failed to keep up with the rising equity markets.

 

Since Jan. 1, Ford shares are flat and GM shares are down about 4%, while the S&P 500 ($INX) is up 9% and the Dow Jones Industrial Average ($INDU)  is up 10%. 


Ironically, the stocks are lagging even though recovering auto sales have been a pocket of strength in the economy and were a key element in President Obama's 2012 campaign for re-election. Nevertheless, the two companies' broad global footprints are hurting them today.

 

"The biggest factor weighing on these companies is Europe," said S&P Capital Markets analyst Efraim Levy, in an interview. "As you get more clarity on a turnaround in Europe, on if that will happen and when, it will relieve pressure on the stocks. In the U.S., both companies are doing well and are gaining market share." 


Ford and GM both hit 52-week highs on Jan. 15, when Ford touched $14.30 (reached again on Jan. 17) while GM touched $30.68. The high marks reflected the enthusiasm surrounding the Detroit Auto Show, where both Ford and GM highlighted promising new products. Subsequently, fourth-quarter earnings reports disappointed investors, even though Ford beat estimates, because of lower-than-anticipated margin outlooks in both cases.

 

On Tuesday, Ford closed at $13.39 and GM closed at $28.37.

 

Looking ahead, the impending impact of 23 new product introductions by 2017 seem likely to boost GM's market share, which declined to 18% in 2012 from 19.6% in 2011. "GM had been suffering from a dearth of new products because it was headed to bankruptcy, but now it's bringing new products to market again," Levy said. 


Nevertheless, Levy downgraded GM shares to hold from buy following the Feb. 14 earnings report, reducing his 12-month target price to $31, reflecting weakness in Europe and an increase in the expected tax rate to 35% from 10%, partially offset by a $600 million reduction in depreciation charges following an asset write-down in Europe. Jefferies analyst Peter Nesvold has a hold and a $29 price target.

 

Levy dismissed the suggestion that GM's share price has been impacted by the U.S. Treasury's sale of $490 million worth of GM shares in February, when shares traded between $26.19 and $29.36, equating to a sale of about 17.5 million shares. Average daily volume is around 11 million shares.

 

"If there is a value in the stock, the stock should move towards its natural value regardless of the potential overhang from selling shareholders," Levy said, adding. "$500 million worth of stock is not so much for GM."

 

Regarding Ford, "sentiment clearly cooled going into and after the 4Q earnings report and (Ford) entered oversold territory, a recent bounce notwithstanding," Nesvold wrote in a recent report which suggest the lagging share price reflects false perceptions following the earnings report. Nesvold had a buy rating on the stock and a price target of $16.

 

"We continue to believe that Ford has the right team in place to address the operating losses in Europe; that the company's U.S. product cycle likely hits the accelerator again in 2014 with the new F-150; and that South America and Asia Pacific Africa (APA) can be substantial earnings contributors over time," Nesvold wrote. He forecast a return to break-even in Europe by 2015; the company expects losses of $2 billion annually in Europe this year. 


Nesvold said three aspects of Ford's outlook suffer from false negative perceptions. "The biggest overhang on Ford shares has been the step-down in North American margins implied in the 2013 outlook," to around 10% in 2013 from 10.4% in 2012, Nesvold said. Investors anticipate increases in pension and amortization costs, but apparently fail to consider that "Ford's North American business should throw off more cash in 2013 than it did in 2012," he said.

 

Secondly, despite the falling yen, Ford has seen no evidence of higher incentives by Japanese automakers. Additionally, Nesvold said, a projected $1.5 billion increase in capital expenditures is "a high-class problem (because) Ford has multiple projects into which it can deploy capital at high incremental returns."

 

UBS analyst Colin Langan has buys on Ford, GM, Toyota (TM) and Hyundai. In a recent report, Langan said GM is the best-positioned automaker because of new vehicles arriving this year including the K2XX pickup. GM has a 33% refresh rate, he said, while Toyota is second with a 27% rate. Ford lags with a 7% refresh rate, but nevertheless should benefit from its 2012 launches of the Fusion and Escape, he wrote. Top five 2013 launches will include the K2XX pickups and SUVs as well as Toyota Corolla, Nissan Rogue and Jeep Cherokee, Langan said.

 

 

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21Comments
Mar 13, 2013 2:14PM
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Wall street does not like real American companies ! And making money and hiring thousands of people here in the USA makes wall street mad ! ... So much for the so called job creators. Wall street and the rich . Ya 10 plus yrs of bailouts and tax cuts and the great job creators are still out to lunch.. Only in the USA... Land of the free and socialized wall street ! Home of the truly stupid <<< The American people ..
Mar 13, 2013 4:01PM
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One problem with GM, or any auto stock...  Economy turns down a little, auto sales can tank 50% or more in just a few short weeks and the big three are still probably only a bad year away from bankruptcy.
Mar 13, 2013 6:14PM
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Whats wrong with their stock??? Thats easy...a$$hole writers like yourself that keep slammin them and puffing up all the forgein automakers....personally I dislike GM because they haven't yet paid back even a small percentage of what they borrowed, (BTW the pay back they made was with other gov't money we lent them), and until they make it right with the original stockholders/bondholders they screwed with their BK, I won't buy any of their products.  Although Chrysler did pay back they are no longer an American Company....the Italians own them.....Ford is the only one that has truely weathered the strom and deserves respect for doing so from you so called financial writers.....
Mar 13, 2013 5:42PM
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I own a 2004 Chevy Cavalier with 120,000 miles on it. 32 MPG on the highway at real cruising speed (75 MPH) Absolutely no mechanical problems the entire time I have owned it. For every story you read about the Japanese cars being better there are an equal amount of people like me that will tell you to take your Japanese car and stuff it.
Mar 13, 2013 5:34PM
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Why wouldn't GM be the best positioned, they have not paid a dime in federal taxes since the bailout. Ford does, unfortunately. What a bargain!
Mar 13, 2013 4:05PM
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What's wrong with Ford, GM stock?

Only an idiot would ever invest in a union industry ever again.


Mar 13, 2013 5:50PM
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Q Tip said it best....just a hint of economic bad news and the big three are hairs away from folding.  Also, since GM & Chrysler left original stockholders and bondholders holding worthless paper who would take a chance of getting screwed again.  These companies are still poor investments and very high risk.
Mar 13, 2013 8:10PM
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We have owned over 60-70 vechicles, none for fleet purpose...

Have only about 2 maybe 3 Foreign made...

 

Never had any problems with GM or Fords..

One Plymouth..with a Mitisubishi Engine, was the only Lemon we ever owned, after about

150,000 miles...The Jap portion was the problem..

 

All of our cars and trucks, were MAINTAINED,...That makes the difference..imo.

The only thing that's important..

Mar 13, 2013 8:03PM
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Villummm....I really don't know where you get those type of figures for union retirees..hmmm.
Mar 14, 2013 12:54PM
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I'm a very small scale investor and I claim absolutely no expertise but my impression from watching the market and tracking my little holdings is value has very little to do with stock price.  Speculators rule the market.
Mar 13, 2013 5:14PM
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screw gm and big unions , fat cat like obama retiring in lavish surroundings while the lil guy suffers ill never buy american im american full blooded but americans sell junk and are greedy basterds that take advantage of thier own people govt motors trucks built in mexico chevy sonic in korea
Mar 13, 2013 5:58PM
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Except for the dumbazzes that make moronic comments...They WON'T understand anyway..

 

Nobody has Mentioned a Large chunk of GM stock that the Gov't. sold in Feb.

 

Out of $49 billion loaned GM has now paid back $29 bil and leaves a balance of about $19.7

left to pay or Gov't to sell their stock...

Mar 13, 2013 6:14PM
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I've owned four new japanese made autos in my life time and have had no issues what-so-ever.  Owned four new GM vehicles in my life time and had three lemon law buybacks.  GM is a joke.  It's all about profits for GM.  Quality and service after the sale is nothing short of joke with GM.  Good old American Greed, profits for the fat cats and screw the common man.  If you ever hear "we weren't able to duplicate the problem" or "nothing in the service bulletins mention the issue your experiencing",  or "it's well within GM specifications" ,  don't believe them.  GM service managers are trained to use these lines.  Spend a $29.95 on the internet at alldatadiy.com and take a look at the service bulletins on vehicle.  Also check of the sife for NHTSA,  .  When you find the same issue your experiencing in the GM service bulletins, return to your dealer and ask the question, why did you lie to me?  Then file your complaint with the BBB and seek a buyback through the auto lemon law.  It's not difficult at all.  GM is the absolute worse auto manufacture over the past two decades.
Mar 13, 2013 6:10PM
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A union worker retires with around $2500 to $3000 a month in pension plus they get Social Security. What people are completely missing here is a union worker is retiring with a golden parachute. When you look at all the benefits union members receive what would a non union person need in cash to live the same lifestyle. A CD only pay 1.5% on your money. If your retired you want something very secure so the stock market is out of the question for most. In order to receive $2500 a month you would need 1.9 million in cash and that is if your getting 1.5% on your money. 1.5 % is on the high side. You would need another $700,000 or more at the same interest rate just to pay for your benefits. So remember when executives retire they don't get a pension they get a payday for years of service. It's up to them to retire on it after they pay taxes. A CEO gets 10 Million half goes to taxes. Now he has to live of the interest of what is left over. At least they get to pass it on to their family. 
Mar 13, 2013 5:01PM
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The problem with these stocks, is the fact that foreign cars are better quality. Pure and simple. We will never top the Japanese. The car makers in this country, that originated in this country, are concerned with profit, not quality. The Japanese have a much more honorable system. I'm an American, but I will not buy a Ford, or a GM automobile.
Mar 13, 2013 3:55PM
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I love Ford and GM products, I'm in the auto repair business, I drive a Toyota Tundra, 2005 with 334,000 miles and no plans to retire it yet, Merle Haggert sings of driving a ford or chevy for ten years, ha, not anymore, drive em to a foreign car dealer.
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