The real difference here has been in stock performance since the recession. With the government owning much of GM for so long (until very recently), GM’s stock upside has been limited since its most recent initial public offering. In 2013, GM’s closing bell price of $40.87 generated upside of almost 42%. The closing price of $15.43 on Ford’s stock in 2013 generated a total return of about 23%. This was a game of catch-up for GM, now no longer with the dubious name of “Government Motors” in America.
Ford trades at only about 8.5 times expected 2014 earnings estimates, while GM trades at about 8.7 times expected 2014 earnings estimates. Ford just raised its dividend to a yield north of 3%, while GM is still hoping to reinstate its dividend in 2014.
Ford has dominated the news in 2014 so far. Many sales metrics were the best in years, it boosted its dividend and Alan Mulally has pledged to remain on-board until at least the end of 2014. GM is slowly getting more interest from investors as well, in part because of dividend hopes again.
The $18 consensus price for Ford generates an implied upside of almost 14%, plus there is that more than 3% dividend yield. GM’s consensus price target of $48.33 generates implied upside of more than 19% in 2014.
Does it matter if Warren Buffett raised his stake in GM handily in 2013 to 40 million shares? The most likely scenario is one of the rising tide lifting all ships (or similar ships). What may be good for GM may also be good for Ford. And vice versa.
If you think that new car sales will rise handily in 2014, then both companies can see a rise in stocks. If the best has been seen, then both may churn around slightly higher prices rather than heading up to the consensus price targets.
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