Analyzing Traditional Automakers: Why General Motors Stands Out

In this article, I will use the TipRanks Stock Comparison Tool to analyze traditional automakers, including Ford (F), General Motors (GM), and Stellantis (STLA). A closer look suggests a neutral stance on Ford, while a bullish outlook is favored for both GM and Stellantis. However, if I had to choose one, I believe investing in General Motors is the best option compared to the other two, which I will discuss next.

Ford: Managing Challenges

I hold a neutral view on Ford, a historic U.S. automaker grappling with significant restructuring challenges aimed at boosting profitability and coping with industry uncertainties. Unfortunately, recent results have not met expectations due to quality and warranty troubles, difficulties in transitioning to electric vehicles, and waning investor confidence.

In its Q2 report, Ford posted disappointing earnings—47 cents per share, missing the 68-cent estimate. This represents the third consecutive quarter of sharp year-over-year declines, largely driven by warranty costs. Furthermore, the Ford Blue segment, focusing on internal combustion engine (ICE) vehicles, saw an adjusted EBIT of $1.2 billion, down 48% from the previous year.

Warranty costs have plagued Ford for several years, diminishing its reputation for quality. In 2023, Ford recalled 5.9 million vehicles, marking it as the highest recall of any U.S. automaker. These losses, alongside increasing warranty claims, raise concerns about the overall quality of Ford’s combustion vehicles.

Positive Moves Amidst Adversity

Despite these challenges, I do not adopt a purely bearish perspective. There are encouraging signs; CEO Jim Farley has announced upcoming resolutions for warranty issues, with plans to invest in advanced technologies and improve testing protocols to address these problems by 2025.

Moreover, Ford reinstated its dividend in 2021 after suspending it during the pandemic, indicating renewed confidence in its financial health and consistent cash flow. The company offers a dividend yield of 7.43% with a payout ratio of 47.5%, making it appealing for income-focused investors. In terms of valuation, Ford is trading at a forward P/E ratio of 5.6x, approximately 30% below its five-year average.

According to TipRanks, Wall Street rates Ford as a Moderate Buy, with an average price target of $14.40, suggesting a potential upside of 34.33%.

General Motors: Leading the Charge

My outlook on General Motors is positive, as the company continues to be a major player and leader in vehicle electrification. The strong sales growth and aggressive shift toward electric vehicles have allowed GM to outperform many rivals this year.

In its Q2 report, GM showcased impressive results, especially in its ICE trucks and SUVs, achieving EPS of $3.06—a 60.2% increase year-over-year. Additionally, its adjusted EBIT reached $4.4 billion, up 37% from last year, prompting the company to raise its full-year guidance by $500 million, now estimated at $13 billion to $15 billion.

GM’s Growth and Stock Performance

General Motors’ commitment to expanding its Electric Vehicle (EV) initiatives is key to its bullish investment outlook. The company has set ambitious goals to electrify 50% of its fleet by 2030 and 100% by 2035, now emphasizing that these targets will align with consumer demand.

One primary reason for GM’s stock outperformance is its nearly 5% revenue growth year-over-year, significantly higher than the industry average of 2%. Its EBIT increased by 4.2%, in contrast to the industry’s 1.8% average. On the other hand, competitors like Ford and Stellantis reported EBIT declines of 55% and 27%, respectively.

While GM offers a dividend yield just under 1%, less appealing than Ford’s, it has repurchased approximately $11.5 billion in shares over the past year, yielding a buyback yield of about 21.6%—far exceeding Ford’s 1.3%. Additionally, GM trades at a forward P/E ratio of 4.8x, nearly 40% below its historical average, despite a remarkable 55% stock appreciation over the last year.

As per TipRanks, the Wall Street consensus rates GM as a Moderate Buy, with a promising outlook ahead.