Ford vs. GM: Which Is a Buy?

Shah Gilani|September 4, 2024

It’s a battle for the ages…

Ford or GM?

Which is a Buy… and which is Not?

Shah has the answer in this week’s video.

One has a good-looking chart and strong earnings… while the other pays a solid dividend and has lots of room to run higher.

But only one makes it onto Shah’s Buy list.

See which one wins the battle… and deserves your investing dollars in the latest edition of Buy This, Not That.

 

TRANSCRIPT

Hey, everybody. Shah Gilani coming to you with your weekly BTNT.

I am in a private booth at the Delta Sky Lounge at LaGuardia. Pretty cool. I got complete privacy in here. It’s maybe not the best lighting. I apologize for that, But coming to you live, nonetheless.

Well, recorded, but close to live as we can get. Now, it’s Wednesday morning when I’m recording this for you guys before I’m about to take off, and the futures are down again.

So you know, we’ve seen a dustup. It’s September. We turned the page on August, and here we are. Markets are bit upset.

Whether or not that continues remains to be seen. But investors are still asking what’s a buy, what’s not a buy? So this BTNT is about two iconic American car manufacturers.

You know who they are.

First up is General Motors (GM). So let me give you a little screen share here because I want to talk about these two, General Motors and Ford (F), in light of, besides the metrics, their stock charts.

So first up is General Motors. Now I’m going to just kind of steal the thunder from Buy This, Not That, and tell you General Motors, Not.

It’s Not a buy. Yes. I get it. For those of you who like a good-looking chart, that’s a good-looking one-year chart.

I get that. But what I don’t like about this $54 billion market cap company is that it’s had such a nice ride. And the testament to that ride has been its performance, which I really can’t take issue with. The quarterly revenue growth for GM over the trailing 12 months is 7.2%.

That’s impressive for a legacy car manufacturer. Quarterly earnings growth for the last 12 months, trailing 12 months, is 14.3%. Quarterly earnings growth.

Wow. Color me impressed.

Revenue, $178 billion. Profit margin – are you ready for this? – 6.22%. Color me impressed. What I’m completely unimpressed with is this doesn’t pay you.

General Motors doesn’t pay you to hold it. It’s got a 0.99% dividend yield. Let’s call it 1%. It’s got a 1% dividend yield.

I’m not interested in holding a legacy automaker with a 179% debt to equity even though it’s had a nice run. If you own it, you might want to put some stops in there because I don’t know how much higher it can go. On a one-year basis, just back here on July 18, it was at, on an intraday basis, $50.50. It’s trading $48, around $48.50 now.

It’s going to be probably down a little bit once the market opens this morning. It’s about 9 o’clock when I’m recording this for you on Wednesday morning. And, again, the futures are down. General Motors in the premarket, as you can see on my screen, down about a quarter of a percent.

So where is General Motors going to go? Going to go back up to $50, $55? So you have to take a little longer look and say, how does that chart look in two-year basis?

Pretty, pretty good. Had a nice move. On a three-year basis, oh, not so great. It’s fallen from back here, on and this was January 3 of 2022, had a intraday high of $67.21. So for General Motors to get back up, it’s got a lot of stuff to get through, and I don’t really know what the impetus will be for General Motors to get through. So it’s Not a buy. It’s not going to pay me enough to hold it.

It’s doing well, granted. And if you own it, just make sure you put a stop in there because on a one-year basis, let’s call it what it is, a good-looking chart. Now this dip, again, this was part of the yen carry unwind trade where everything got hit. And, you know, there’s some chatter out there now that that yen carry trade isn’t fully unwound, and we may be seeing some more unwinding if the Japanese yen starts to appreciate again. And, by the way, Bank of Japan has said they intend to raise rates. So that means the yen will likely appreciate. That means more unwinding of that massive yen carry trade.

All that means is, for me, this is a possibility, again, to see General Motors come down again. So it’s not a buy here. If you own it again, make sure you have a stop in there. Take your profits if you’ve especially if you’ve written it up from way down here in the low $20s, and you’ve had a nice run.

Maybe even doubled your money because stock has had a super run. But put a stop in there because I’m not sure how much higher it’s going to go, and it’s not a buy for me for any other reason that it doesn’t pay me to hold it. It’s had a good run. The numbers are good, but I don’t want to own a legacy U.S. car manufacturer with the economy potentially slowing down, and it doesn’t do anything for me.

So General Motors, Not.

Now Ford, on the other hand, and this is where analysis becomes nuanced – mine in particular – Ford Motor Company is a Buy for me here, and I’m going to start by showing you the one-year chart. And you’re going to say to me, why would you think that’s a Buy? And I’ll tell you why. Because first and foremost, it pays a pretty handsome dividend.

The dividend yield, forward dividend yield on Ford right now is 5.46% with about a 63% payout ratio. So they’re able to pay that dividend out of the net income available to common shareholders pretty comfortably. So, again, just for comparison purposes, General Motors’ forward yield was 1%. The average over the last five years for General Motors’ dividend yield was 4.06%.

Ford currently has a forward dividend yield of 5.46%.

It’s averaged 5% over the last five years, 5.76%. So it’s maintained a pretty nice dividend for all those years. This is something I’m fine with. If I’m going to park some money in a money market fund or a potential stock like Ford that can appreciate if things turn around, and even though I’m not necessarily rushing to sell it if it goes down, maybe I’ll add some more. I would buy it here for the yield.

Is [GM] as expensive as Ford? No. It’s not as expensive as Ford on a lot of levels. As far as P/E goes, [Ford’s] more expensive. Ford is more expensive than General Motors.

General Motors is a lot less on a forward P/E basis. Trailing P/E on General Motors is 5.4. The forward is 4.95.

Ford, on the other hand, its trailing P/E is twice as much.

So is it cheap? No. It’s not cheap, but on a P/E basis, General Motors is a lot cheaper. But I’m not buying because it’s cheap on a P/E basis.

I’m buying because of this chart, because of the yield. Because just here, July 18, the stock was trading on an intraday basis at $14.85. It’s just a shade under $11 now. If General Motors rallies, where’s it going to go?

If Ford rallies to get back to its recent highs, you going to have a nice 40% gain. You got 30%, 40% gain potential in Ford. Well, you’re not going to have that in General Motors. So Ford’s a buy down here relative to General Motors.

And, yes, the numbers are not as compelling. I grant you all that. For example, debt to equity here is 350%. A heck of a lot worse than General Motors, which was at 179%.

So, again, legacy massive debt. Profit margin is not nearly as good as General Motors. Profit margin for Ford, 2.13% versus Ford’s profit margin of 6.22%. So you can compare apples to apples here because they’re car manufacturers and the numbers don’t compare because Ford’s look worse and General Motors’ look better.

But on a Buy This, Not That basis, you’re going to get a lot more run for your bucks buying Ford, not General Motors. Again, I’m going to buy Ford for its yield because when I have cash, especially if I think the market is shifting and I don’t see it shifting just yet, but in case I do start seeing it that way, I start to load up on Ford. In years gone by, when Ford’s dividend was so superior to everything else, if I had cash and I’d sell out of some trades or positions because money markets weren’t paying anything, I put it into Ford. You had money markets paying less than a percent, a half of a percent, which is obviously not worth it, but I put my cash, my idle capital in Ford for a very handsome yield.

And the stock really didn’t do much, which is just what I wanted, for the stock not to do much, but to get paid handsomely for parking my cash there.

So as far as this week’s BTNT, Buy Ford, Not General Motors.

I’ll catch you guys next week. Cheers.