Auto industry watchers have expected the U.S. auto market to top out for a while now, posing a big threat to Ford Motor (F 2.36%) and General Motors (GM 0.14%). Even though the long-awaited downward cycle in domestic auto sales hasn't really materialized in earnest just yet, both Ford and GM have had struggles elsewhere in the world that have held them back from their full potential.
Given the low expectations that investors have, Ford and GM boast share prices that look extremely attractive. Yet even though the stocks haven't produced the amazing returns that shareholders have hoped to see for a while now, many value investors still think the two automakers have good long-term prospects.
Let's look more closely at Ford and General Motors with an eye toward figuring out which looks like the smarter investment right now.
Valuation and stock performance
Ford Motor and General Motors have largely been stuck in neutral lately. General Motors has at least managed to produce modest gains for shareholders, with the stock up 5% since March 2018. Ford is down 19%, adding to its multiyear woes.
Using traditional valuation metrics, both Ford and GM look dirt cheap. But even though its stock has fallen, Ford looks a bit pricier on a share-price basis. Ford currently trades for about 9 times trailing earnings, compared to a trailing multiple of less than 7 for General Motors. Even if you take out some of the one-time impacts to earnings that have affected companies' bottom lines over the past year and look instead at near-term future earnings projections, GM retains an advantage. GM's forward multiple of 5.8 ekes out a win over Ford's 6.4. GM has both momentum and valuation on its side.
Dividend investors like the payouts that Ford and GM stock offer, but Ford looks more attractive on a yield basis. The Blue Oval's stock sports a dividend yield above 7%, compared to a much lower though still attractive 4.2% yield for General Motors.
Ford also sports the better track record of recent dividend growth. Ford was faster off the line to restore dividends following the financial crisis, and it has boosted its payouts more quickly in the years since. By contrast, GM started paying a dividend again in 2014, but it hasn't delivered as many dividend increases. Despite some concerns that its yield might actually be too high for comfort, Ford looks like the more attractive stock from a dividend perspective.
Growth prospects and risk
The big question for both Ford and General Motors is whether they can stave off the economic slowdown that much of the world is going through right now. For Ford, 2018 was a difficult year, as operating profit fell 28%. Despite a modest rise in revenue, the Blue Oval faced higher costs for the commodities it needs to produce vehicles, expenses related to recalls, and some charges related to pension liabilities. Losses in South America, Europe, the Middle East and Africa, and the Asia-Pacific region weighed heavily against earnings in North America, and despite good performance from its credit division, Ford remains uncertain about its overall prospects for 2019. The need to keep up with initiatives in areas like electric vehicles and self-driving cars while also keeping its core customers satisfied is a tough balancing act, and many worry that the coming year could be another disappointment for long-suffering shareholders.
General Motors is dealing with many of the same tough conditions, but its 2018 numbers looked a lot better. Internationally, GM faced headwinds, as overall results included a net loss in large part because a plunge in sales to the key Chinese market. Earnings in North America were down from year-ago levels but still came in relatively strong, with booming interest in new versions of the Chevy Silverado and GMC Sierra vehicles helping to cement GM's supremacy domestically. The self-driving division GM Cruise continued to lose money, but with plans to make strategic progress in the coming year, that investment looks like it might finally pay off in the long run. Add to that the likelihood that GM's earnings could come in flat to slightly higher in 2019 compared to 2018 levels, and things are looking reasonably good for General Motors.
Based on these numbers, it's a tough decision whether to pick Ford or GM. Dividend investors love Ford's yield and see plenty of upside potential, but growth investors have to be pleased at the way that General Motors has responded to the challenge. Those with more of a value bent might slightly favor Ford, but the pros and cons balance so closely that the decision is almost too close to call.