4 Auto Sector Stocks To Consider This Quarter
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Our domestic automobile industry had a better than expected November. Part of that, of course, was due to a collapse of the market in late October due to the impact of Sandy throughout the Atlantic coast and lower Great Lakes states. But in November, pretty much what could have gone right, did go right, leading to assuring fourth quarter sales and profit projections. But, since the well circulated November good news only addresses sales in the United States, European sales remain the big “elephant” in the room. American sales will likely be depressed in December versus a year ago due to the uncertainty brought on by budget negotiations in Washington. No one likes uncertainty.
Ford (NYSE: F) sales in America were up 6.5% to 177,700 units, driven by its pickup and several new, state of the art small, fuel efficient vehicles. The company earned $2.3 billion in profit from North American Operations in the third quarter. It announced increasing production goals for the current fourth quarter to 750,000, representing an 11% increase from the fourth quarter of last year. About the only fly in Ford's ointment, at least domestically, is ramping up is the struggling Lincoln luxury division. Several new and improved models are being introduced.
However, until Ford fixes its European division, it will never be as profitable as it could and should be. That unit is on track to lose $1.5 billion this year. Ford is trying to combat its losses by transferring production from high cost European countries, like Germany and Belgium, to lower cost countries, like Spain and Ireland. On balance, analysts are looking for Ford to earn about $0.25 per share, which would represent a 25% improvement from the 4th quarter of 2012. I actually look for a penny or two more per share, based upon revenues coming in higher than expected due to the aforementioned sales increases. The mean 52 week analyst price goal is nearly 30% over the stock price as I write this, and with its 1.7% dividend, I see Ford as a highly rated trading stock, but not a long-term holding in an industry as cyclical as the auto industry.
General Motors (NYSE: GM) has had a tougher go of it than Ford, much of that traceable to still having partial ownership by the U.S. Treasury. Its November numbers were solid, but a bit complicated. Its passenger car sales and crossover sales of up 19% and 9%, overwhelming a sharp 8% drop in light truck sales. Management stated the category was supported in the month by high incentive activity (rebates) by its competitors, which GM chose not to match. The net result was a gain in November of 3.4% over November, 2011, making this November the best such month since 2007. But GM's announcement that it may be reducing its truck manufacturing ability belies that this is a month to month issue. I applaud GM for getting ahead of a potential problem, but jettisoning a portion of its high margin truck sales is a sign of real distress in the division.
The Chevrolet Volt represents more than just a high mileage sedan; it was meant of a sign that GM's engineers still had creativity and ability. It appeared through the fall that Volt sales had finally risen to mediocre status, approaching 3,000 per month. But November sales plummeted to about half that due to supply issues. General Motors has too much riding on the Volt to take its supply that casually.
Like Ford, GM's status in North America is fine. But it will lose well over $1 billion in Europe this year. And it is just as hard to see Europe turning around as it is to see North American sales flailing. All the while, Chinese sales in general are showing continuing strength despite the relative slowdown in the country, and GM would be well served I believe, to invest more in China while reducing its exposure in Europe.
The U.S. Treasury must eventually divest its stake in General Motors as well, and when that happens there will be some dilution. A sale of the Treasury's 26.5% stake in General Motors was rumored in the third quarter, but noting transpired. Make no mistake; the story here is Europe, and as they say, I will believe it when, or if, I see it.
Tesla Motors (NASDAQ: TSLA) is a niche automaker devoted solely to premium, electric powered vehicles. Its billionaire founder and Chief Executive Elon Musk tweeted that the company actually had positive cash flow for the week ending December 1. That is no small measure of success for this particular company, which has reported sizable losses since going public in mid-2010.
The big news for Tesla is its introduction of its first car with a price well below six figures. Tesla's “S” model can be configured with batteries with ranges from 160 miles to 300 miles. All have extraordinary acceleration, and can be well customized. Overall, I like Tesla. But for a company that has never even come close before to turning a profit, its current, nearly $4 billion market capitalization seems daunting. Most analysts see Tesla turning a profit in 2013, but I believe that Ford and GM have far better defined earnings and more predictability. Tesla is for the most speculative of investors only.
World leading automobile manufacturer Toyota (NYSE: TM) has turned its act around for the better. After blows about vehicle quality followed by an earthquake and tsunami in Japan that affected much of Japan's infrastructure, Toyota is competing successfully not just against other producers, but also against its own past few years' results. In America, its November sales of 162,000 units was up 17.2% from November 2011. Overall, the company's second fiscal quarter profits of $2.06 per share was some 225% above the same quarter a year ago. Overall, through the first half of its fiscal year, Toyota sold about 4.5 million units, a 50% jump from last year.
Comparisons going forward will not be quite as easy to beat for Toyota. Still, its full fiscal year, which ends March 31st, 2013, should involve profits of about $9 billion, or nearly $7.00 per American ADR, which would more than triple the year earlier. Toyota trades with a PEG of just 0.30, far lower than Ford's (1.47) or GM's (0.67), and with its true worldwide exposure and diversity, is my number one choice within the automotive sector.
StockCroc1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford and Tesla Motors. Motley Fool newsletter services recommend Ford, General Motors Company, and Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!