When purchasing a car, it's important to consider the best option from multiple angles. The same goes for investing in car companies. What´s the best choice for investors right now: Ford (NYSE:F), GM (NYSE:GM), or Toyota (NYSE:TM)?
Trucking for profits
The truck segment is a big source of profits for American automakers, and Ford's F-Series has been America's best-selling vehicle for 36 consecutive years. GM has recently revamped its Chevrolet Silverado and GMC Sierra models, but Ford seems to be holding its ground quite well.
Ford reported sales of 63,803 F-Series trucks in October, representing the F-Series's sixth straight month above the 60,000 vehicle mark, with an increase of almost 13% versus the previous year. Importantly, Ford is keeping incentives and discounts at moderate levels, which speaks well about demand strength and has positive implications in terms of profit margins.
GM is also doing well with Silverado sales rising by 10.1% to 42,660 units in October and Sierra sales increasing by 13.3% to 16,503 vehicles during the month. Toyota delivered solid truck numbers in October, too, with sales of Tacoma and Tundra rising by 1.3% and 22.6% to 12,351 and 9,913 units, respectively.
The real estate recovery is generating considerable tailwinds for light truck sales, and different companies in the industry are benefitting from that trend. But Ford´s leadership position in the segment makes it the clearest winner from booming truck sales in the U.S.
Cars running at full speed
Car sales were remarkably strong in October, despite fears induced by the government shutdown, Ford reported an increase of 18.2% for the month, versus a rise of 17.2% for GM and a more modest 3.2% for Toyota.
Ford still trails GM and Toyota, with sales of 715,934 cars in the first 10 months of the year, in comparison with 908,215 units for GM and 1,065,881 cars for Toyota. But the company is gaining market share in the segment, thanks to the popularity of models like Escape, Fusion and Explorer.
Ford has materially improved the quality of its cars over the last few years, with better designs and greater fuel efficiency. As the entire industry posts healthy growth, Ford looks well-positioned to keep stealing a bigger piece of the market from its rivals.
The China opportunity
In China, Ford is much smaller than GM. Ford sold 741,818 vehicles in China in the first 10 months of the year, while GM and its joint ventures totaled 2,594,864 units in the same period. But Ford is rapidly gaining ground in the world's most populous nation.
In October, Ford and its partners' sales rose 55% year over year to 93,969 vehicles versus growth rate of 12.2% for GM to 282,446 units during October.
In the first 10 months of this year, Toyota and its two local joint-venture partners sold 719,200 vehicles in China, up 4.9% from a year earlier. The Japanese company announced a big increase of 80.6% to 82,400 units in October, but that was due in big part to the low base from last year. Last September, Japan nationalized disputed islands in the East China Sea, sparking anti-Japan riots in China that hit sales of Japanese brands in the following months.
Ford has a small market share of only 4.3% in China, which means that the company has a long way to go before it can measure up against China's market-leading automakers, GM and Volkswagen.
On the other hand, this also means that the company has a lot of room for growth in such a strategic market. Judging by its sales performance, Ford is moving in the right direction to capitalize on that the opportunity.
The price tag
When comparing valuation ratios, Ford has the lowest P/E in the group on a trailing-12-month basis, while the forward P/E is more expensive than GM´s, but cheaper than Toyota´s. Ford also has the highest dividend yield in the group at 2.4%, versus 1.6% for Toyota and no dividends for GM.
We could say at least that Ford is trading in line with its peers, if not undervalued, considering its strong performance and potential for growth over the coming years.
Ford has a rock-solid leadership position in the profitable U.S light trucks market, and the company is gaining market share in cars over the last quarters. China still offers abundant room for growth and the stock is trading at a moderate valuation level. After kicking the tires, Ford looks like a better choice than GM or Toyota.