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2 Surprising Stocks to Buy Now

By Daniel Miller - Apr 18, 2013 at 1:00PM

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These two stocks are solid companies that I believe are undervalued because of past perceptions. Things have changed for these two and I think they are stocks to buy now.

Most investors still shy away from buying stock in Detroit automakers Ford (F 0.31%) and General Motors (GM 0.58%) 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.

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Stocks Mentioned

Ford Motor Company Stock Quote
Ford Motor Company
F
$12.89 (0.31%) $0.04
General Motors Company Stock Quote
General Motors Company
GM
$36.33 (0.58%) $0.21

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