2011's Worst Auto Stocks

What a crazy year it's been for investors. The S&P 500 jumped more than 8% by May, only to turn around and find itself down more than 10% in August, mainly as a result of the European debt crisis and Washington's inability to agree on a solution to our debt dilemma. Now, at the end of December, the S&P has fought back and is poised to end the year essentially flat.

But while the markets as a whole didn't change much for the past 52 weeks, there were certainly companies that had a year to forget in 2011.

Here's a list of 2011's 10 worst performers in the automobiles and components industry.

Company

% Return in 2011

Tenneco (NYSE: TEN  ) (29.7)
Tata Motors (NYSE: TTM  ) (31.0)
Dana Holding (31.1)
Autoliv (34.1)
Visteon (34.9)
Magna International (35.9)
Ford (NYSE: F  ) (37.3)
TRW Automotive (40.0)
Cooper Tire & Rubber (NYSE: CTB  ) (41.7)
General Motors (NYSE: GM  ) (46.1)

Source: S&P Capital IQ. Only includes companies listed on U.S. exchanges that contain a market capitalization greater than $500 million. Returns as of Dec. 28, 2011.

It's been a terrible year for the stock prices of companies in the automobiles and components industry. These companies are all cyclical and strongly tied to the global economy and consumer sentiment, which certainly hurt them in 2011.

Perhaps most surprising is that General Motors was the worst-performing auto stock of the year. The company performed admirably this year as it advanced its recovery from bankruptcy, and is poised to take Toyota's (NYSE: TM  ) crown as the world's best-selling automaker. So why the 46% drop in share price?

It's likely due to a few factors, including GM's exposure to Europe, where it's currently losing money. Also, hundreds of millions of GM shares are still owned by the government. Many investors are holding off on investing in GM until the Treasury decides to unload those shares, which should depress the share price. But this is still a stock trading for less than five times earnings, which I think is a great value.

Ford's stock also had a rough year, currently down 37% year to date. As with GM, much of this decline is due to Ford's exposure in Europe and the struggling global economy. But this is a stock that I expect to rebound soon. Ford has done a remarkable job decreasing its breakeven point, and showed a key sign of financial health by re-instituting its dividend earlier this month.

Also, Ford is just one notch below investment-grade status, according to all three major credit ratings agencies. Expect Ford to be upgraded soon, which will make it less expensive for the company to borrow money and will allow many mutual and retirement funds to invest in the stock, which should help drive the price up.

What's pretty remarkable here is how the two domestic automakers, which posted market share increases and impressive sales numbers for the year, saw their stock prices decline more than the two major Japanese automakers, Toyota and Honda (NYSE: HMC  ) . These two companies had to deal with three major crises in 2011: the March earthquake and tsunami in Japan, the floods in Thailand, and the strength of the yen, which drastically erodes profits for cars made in Japan and sold abroad. Yet despite all three of these issues, Honda's and Toyota's stock declined 27.1% and 21.5%, respectively, significantly less than that of both domestic automakers.

Ford's and GM's stock prices may have gotten clobbered this year, but I expect both to rebound and have a solid 2012. If you're looking for another strong outperformer in the year ahead, you're in luck. Our chief investment officer has created a brand-new free report called "The Motley Fool's Top Stock for 2012." It highlights a company that we've dubbed "the Costco of Latin America" and picked out for explosive growth ahead. You can get instant access to the name of this company by clicking here -- it's free.

Brendan Byrnes owns shares of Ford Motor. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Autoliv, General Motors, and Ford Motor. Motley Fool newsletter services have recommended creating a bear put ladder position in Autoliv. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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