Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Following three consecutive days of losses, the downbeat sentiment crept into Wednesday morning, as stocks opened lower. The S&P 500, and the narrower, price-weighted Dow Jones Industrial Average (^DJI -0.11%), were down 0.4% and 0.3%, respectively, at 10:01 a.m. EST.
Yesterday, a federal judge ruled that the city of Detroit is eligible for chapter 9 bankruptcy protection, opening the road to debt restructuring negotiations in the U.S.'s largest municipal bankruptcy. However, while Motor City is struggling with a financial crisis, motor vehicle manufacturers Ford (F 0.08%), General Motors (GM -0.04%), and Chrysler have emerged from theirs. In fact, judging by the sales figures for November, they're in rude health.
The No. 1 automaker by sales, General Motors posted a 14% year-on-year increase in the number of vehicles sold, with sales of its Chevrolet Malibu midsize sedan enjoying a 41% rise. No. 2 Ford saw sales increase 7%, while No. 4 Chrysler displayed the strongest improvement, with a 16% year-on-year growth.
All three exceeded expectations with those numbers, and the No. 3 automaker by sales, Toyota, also performed well, announcing 10% sales growth in November. All told, the seasonally adjusted annual rate of sales in November is now forecasted to exceed 16 million -- only the second such month since the financial crisis took hold (see graph below). Lower oil prices, and favorable credit conditions, have encouraged consumers to swing for a new car.
US Auto Sales data by YCharts
While one month's sales figures aren't a legitimate reason to buy auto stocks, they are a good opportunity to look at the companies with a fresh eye, and evaluate their prospects against their share prices. Yesterday, Morgan Stanley auto analyst Adam Jonas published a report in which he named Tesla Motors (TSLA 12.06%) his top pick among the 26 auto stocks that Morgan Stanley covers on the basis of (expected) risk-adjusted return.
I'll agree that Tesla's growth prospects are better than Ford's or GM's; but, in the stock market, slow and steady -- and poorly rated by investors – usually wins the race over racy and expensive. As I wrote yesterday, "Established automakers Ford (F 0.08%) and General Motors (GM -0.04%), both of which are valued at less than 10 times next 12 months' earnings-per-share estimate (as opposed to Tesla's 129 multiple), look like the much better risk-adjusted values."
