2 Surprising Stocks to Buy Now

Most investors still shy away from buying stock in Detroit automakers Ford (NYSE: F  ) and General Motors (NYSE: GM  ) because of how horribly they were run in the late '90s and 2000s. Both are producing higher quality, more popular vehicles and management has pulled its act together. Let's take a look at both companies, and I'll explain why I feel both are stocks to buy.

A look at both
Both companies have drastically improved their balance sheets – albeit in different ways – since the recession. If you're thinking that Ford still has an enormous amount of debt, you're misunderstanding it. Investors now want to see potential future growth in the top and bottom lines. Let's break it down and see what's happening.

Top-line growth
The revenue growth will come down to selling vehicles – simple as that. The good news for both of these companies is that's exactly what's happening.

For the first two months of the year the Fusion saw increases of 65% and 28%, versus prior year. It also had an impressive March by selling over 30,000 units for the month and 80,000 for the quarter – for the first time in the Fusion's history.

Looking beyond the numbers, check out the awards this flashy sedan brought home:

  • 2013 "Green Car of the Year" award during the Los Angeles Auto Show.
  • 2013 Kelley Blue Book "Best Redesigned Vehicle"
  • Three straight years – U.S. News & World Report "Best Cars for Families"
  • Three straight years – U.S. News & World Report "Best Car for Your Money" 

If you glance at the other vehicles Ford is selling, you'll realize the Fusion wasn't a one-hit wonder. The Escape had an all-time February sales month record and was up almost 30% versus last year. It followed that performance in March with the best sales month ever in the Escape's 13 years on the market. The top-selling truck for 36 years – the F-Series – anchors up the most profitable U.S. market segment and is up double digits for the quarter versus last year. Meanwhile, globally, the Fiesta and Focus are selling great, with the Focus topping over 1 million units sold last year.

In the first quarter, GM sales were up 9% as a company versus last year. Its Cadillac brand – led by the 2013 Detroit Auto Show "Car of The Year" ATS model – was up 38%. Buick, GMC, and Chevy were up 28%, 14%, and 5%, respectively. Most importantly, full-size pickup sales were up 21%, bringing in large margins for GM.

GM is a step behind Ford in releasing new models, but plans to redesign or refresh 90% of its vehicles in North America by 2016. So far, 2013 has started off to be a great year for GM and I believe the new vehicles will significantly boost GM's sales numbers and revenues over the next few years.

Bottom-line growth
Top-line revenues are important, but in the past these two automakers have struggled to stay profitable on the bottom line. That isn't the case anymore – their bottom lines have been consistently profitable. Ford jumped the gun and returned to profitability ahead of schedule with its CEO's "One Ford" plan that quickly trimmed the amount of platforms used globally. By year's end 85% of global sales will be from nine platforms, and plans are in place to cut even more by 2016, creating economies of scale. It's also running factories at or near capacity, creating a much lower overhead cost.

GM is a bit behind Ford but plans to cut its number of platforms in half over the next five years. As of now, it is estimated that these two can break even once the U.S. market accounts for 10 million vehicles sold. As of March, the U.S. is on pace to hit between 15.3 and 15.4 million.

Europe is struggling, and the massive losses automakers have incurred are partly to blame for holding stock prices down. When Europe losses begin to subside, and China sales pick up, I'm betting Ford and GM stock prices surge. Ford and GM are in a better situation than they've been in for a decade, and it looks to only get better. That's why Ford and GM are two stocks to buy now.

Worried about Ford?
If you're concerned that Ford's turnaround has run its course, relax – there's good reason to think that the Blue Oval still has big growth opportunities ahead. We've outlined those opportunities in detail, in the Fool's premium Ford research service. If you're looking for some freshly updated guidance to Ford's prospects in coming years, you've come to the right place – click here to get started now.

Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 18, 2013, at 2:13 PM, AmericanFirst wrote:

    Why do you ignore that GM had the highest avg.

    rebates /marketing sales incentives per vehicle sold in the first qtr. plus an increasing % of subprime loans...............see Seeking Alpha - GM's Subprime Loan Roadtrip, 2/19/13?

  • Report this Comment On April 18, 2013, at 3:03 PM, TMFTwoCoins wrote:

    Unfortunately I only have so much room to make points. I have discussed in articles the GM issue with high rebates and incentives due to the ancient vehicle portfolio. I believe the average age of each model in the portfolio is 5 years, whereas the industry average is about 2.5-3. So the incentives are up to counter that.

    I've then argued that will be fixed very quickly as GM is refreshing, redesigning or replacing 90% of its vehicles by mid-decade and that should solve your point. ( in theory...who knows what else could happen)

  • Report this Comment On April 18, 2013, at 9:39 PM, AmericanFirst wrote:

    The point I was were touting GM's 1st qtr. performance without disclosing the underlying reasons for their performance 1) highest rebates / marketing incentives per vehicle sold in the industry/ increasing % of subprime loans to relieve bloated dlr. inventories. Regardless, their efforts failed to get a passenger car in the industry's TOP 10 Ytd.

  • Report this Comment On April 18, 2013, at 10:42 PM, TMFTwoCoins wrote:

    I know what you were saying, and it's a fine point. I only have so much room and this was a bull case only -- which I typically don't do for this reason.

    I'm an honest guy and I'll call it like I see it. After re-reading this article, it's clear it's 80/20 Ford/GM and I didn't explain GM enough.

    Perhaps it's because, like I said, I've previously covered the worry of GM's incentives to boost sales. Sure hasn't helped lower the Silverado's inventory, which could turn ugly real quick.

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