The auto industry has been on top of its game for several years now, and both General Motors (GM -3.52%) and Fiat Chrysler Automobiles (FCAU) have retained their leadership positions near the top of the U.S. auto market. Yet as concerns about trade disputes have raised questions about whether exports of vehicles could become subject to tariffs, investors haven't been sure whether GM and Fiat Chrysler will be able to sustain their impressive sales success into 2018.
Bargain-seeking value investors have looked closely at the auto sector to see whether its rock-bottom valuations are good opportunities or merely value traps. Although both stocks face some similar challenges, each has its own approach toward overcoming them. Let's take a closer look at General Motors and Fiat Chrysler to see whether one stock beats the other on some key metrics.
Valuation and stock performance
Both General Motors and Fiat Chrysler have produced gains for shareholders, but Fiat Chrysler's performance is exemplary. The stock has jumped almost 130% since April 2017 compared to gains of just 14% for GM.
After such a huge run-up, it would be natural to expect that General Motors would now have a valuation advantage over Fiat Chrysler. Yet both stocks have extraordinarily low earnings multiples.
Using backward-looking trailing earnings numbers is dangerous right now because tax reform and other factors have created one-time adjustments that have distorted companies' bottom lines. But when you look at reasonable estimates of future earnings, Fiat Chrysler looks extraordinarily cheap, trading at less than six times forward earnings projections. That's actually a bit less than GM's forward multiple of just above six. Both stocks are rock-solid from a valuation standpoint, but Fiat's stock-price momentum gives it a slight edge in this category.
For dividend investors, though, the answer is much clearer. Fiat Chrysler doesn't pay a dividend and hasn't since Chrysler emerged from bankruptcy after the financial crisis. By contrast, General Motors has about a 4% dividend yield.
GM has been good about boosting its dividend. It, too, went through a period following its bankruptcy when it didn't pay anything to shareholders, but the company implemented a $0.30 per-share dividend in early 2014. Two increases came in 2015 and 2016, but the company has kept its current $0.38 per-share quarterly payout ever since. For income investors, General Motors is the go-to choice between these two auto stocks.
Growth prospects and risk
Both General Motors and Fiat Chrysler have sought to find positives in a competitive environment in the auto industry. General Motors has worked hard to build up an edge, staking an important claim to the Chinese vehicle market that has kept its main rival at bay.
More broadly, General Motors' international focus has paid off for the company, and moves to introduce new upgraded vehicle lines in trucks and sport-utility vehicles should help it to sustain -- and even extend -- market-share advantages over some of its main competitors. The fact that China has been the hot-button issue on the trade front has led to some volatility in GM stock recently, but the company seems to be optimistic that things will work out in the long run and validate the auto giant's strategy there.
Fiat Chrysler has been even more aggressive about making smart business moves to try to take full advantage of its opportunities. U.S. sales of key Jeep models, as well as the Pacifica minivan, have helped lift overall revenue, offsetting declines in Ram trucks and Fiat's namesake imports. That's prompted CEO Sergio Marchionne to discontinue production of some vanilla Dodge and Chrysler sedan models.
Fiat Chrysler also is spinning off its Magneti Marelli parts unit within the next year, leaving the company to focus on its core business while letting the parts subsidiary freely pursue its own opportunities. With monthly sales having reversed a long string of declines, investors are more excited than ever about Fiat Chrysler's prospects.
Both General Motors and Fiat Chrysler have plenty of chances to grow and thrive. But even though it doesn't have a dividend, Fiat Chrysler seems to have greater business momentum right now, and that could help its big share-price advance continue into 2018.