Products like the Fusion sedan have completely changed consumers' view of Ford in recent years. Image source: Ford Motor Company.
Lately, it seems that lots of investors are eyeing auto stocks. Concerns about the U.S. auto-sales cycle (which might be peaking) and high-tech disruption (which might be disruptive) have pushed shares of the big automakers down to surprisingly low valuations. Yet many are healthy businesses paying strong dividends -- and some are well-positioned to thrive as technological innovation transforms the industry.
Here are three stocks that our Foolish contributors like a lot right now: Ford (F -1.13%), General Motors (GM 0.39%), and Tesla Motors (TSLA 1.15%).
Ford: A value-priced icon
Sean O'Reilly: I have been consistently amazed for the last eight years by the story over at Ford. Not only did it not have to declare bankruptcy in the Great Recession, but it hunkered down and created a fantastic lineup of automobiles as the economy began to rebound (full disclosure: I may be biased, as I still miss my 2009 Ford Fusion).
What is perhaps more amazing about Ford's history over the last eight years is its valuation. I'm not the first one to point this out, and I am just as puzzled as everyone else. We are all aware of the primary bear case: Auto sales are at a cyclical peak and it's all downhill from here. Fair enough. However, even if Ford and its peers were to sell slightly fewer cars in the years ahead, the 113-year-old auto manufacturer is just too cheap to pass up.
Shares have fallen a bit post-earnings, thanks mostly to soft near-term guidance. The drop gives Ford a current market capitalization of around $47 billion. This seems more than fair, given last year's revenues of $149.6 billion, net income of $7.37 billion, and free cash flow of $8.97 billion. Looking ahead, the picture is much the same. In fact, management forecast that margins and pre-tax profits for fiscal year 2016 would be at least equal to the previous year's results. At valuations like this, I would hope the board would start thinking about a healthy buyback program before it's too late.
All in all, investors today have the opportunity to own a premier American brand, one that finally got its European operations in the black and continues to expand in China, at just 6.4 times earnings and 5.2 times free cash flow. Add a dividend yield of 5% as icing on the cake, and Foolish investors have a great opportunity in front of them.
General Motors: Poised to lead the future
John Rosevear: The U.S. new-vehicle market has probably peaked, China's is looking shaky, and new high-tech entrants like Tesla Motors are threatening the big automakers like never before.
So why do I think General Motors -- yes, that General Motors -- is a stock that might belong in your portfolio?
Here's why: This isn't the GM of old. In fact, it's nothing like that pre-bankruptcy behemoth, that pushed so-so products at profit-robbing discounts to prop up what remained of its market share.
Under CEO Mary Barra, this GM plays a very, very different game, one that's focused on profits and margins and returns on investments. The best part is that to some extent it's still flying under investors' radar.
Would you believe that J.D. Power rates GM's quality on par with the best from Japan? Or that GM is emerging as a leader in the self-driving-car revolution? Or that GM has been posting record profits, with eye-popping operating margins?
Yes, that General Motors. Remember, for all of Tesla's high-tech sheen, it's GM that will be first to market with an affordable 200-mile electric car.
GM is currently gearing up to start production of the Chevrolet Bolt; the innovative electric crossover is expected to begin shipping in the fourth quarter. Image source: General Motors.
Under Barra, GM might be the best-positioned of all of the big automakers for the technological changes coming to the industry. But as those quality ratings attest, GM hasn't neglected its current business, either: Its pickups and SUVs are in such hot demand that it's boosting production in the U.S., and its latest SUVs are driving big sales growth in China, too.
That's all to say that GM has finally become the kind of well-run, forward-thinking company that we all like in our portfolios. On top of that, its price took a big hit after rival Ford missed estimates last week, and another after July sales were a little weaker than expected. Right now, it's cheap at just 4 times earnings, and paying a 4.6% dividend yield that it intends to sustain through the next economic downturn.
Barra says that investors should think of GM as both a growth story and a dividend stock right now. I think she's right -- and at current prices, I say it deserves a very close look.
Tesla Motors: A story with great potential

The concept version of Tesla's upcoming Model 3. Image source: Tesla Motors.