The US auto industry is looking up, despite the COVID pandemic – and that has car watchers and Wall Street analysts alike moving toward a cautious optimism. Customers are starting to buy cars again, as shown by Toyota Motor's December figures: The company reported sales of 249,601 vehicles, up 20.4% year-over-year.
Now, with vaccination rates increasing and better spring weather just a couple of months away, the car companies are predicting increased demand – and for 2021, they expect to see substantial year-over-year gains as they recoup from depressed sales in the ‘corona year.’
Against this backdrop, J.P. Morgan is pounding the table on two auto stocks in particular, noting that each could surge at least 20% in the year ahead. We ran the the two through TipRanks database to see what other Wall Street’s analysts have to say about them.
Ford Motor (F)
Ford Motor is the smallest of Detroit’s Big Three. Boasting a $45 billion market cap, however, Ford shows that ‘small’ is a relative concept. The company also boasts a loyal customer base and a solid sales foundation build on the F-series pickups.
Ford’s Q3 revenue, at $37.5 billion, showed a turnaround from the corona-induced losses of 1H20; it was the strongest quarter yet reported for 2020, and beat expectations by 13%. Net profit for the third quarter was $2.34 billion in Q3, a 22% year-over-year gain.
The quarterly performance was bolstered by a 35% market share for the F-series trucks in the US market, a 22% increase in product shipments to China, and the best performance by Ford Credit in 15 years.
In recent months, however, Ford has taken some hits. The company was forced to issue a pair of safety recalls in the North American market this past November, on select models of the Taurus, Explorer, Edge, and Lincoln Aviator vehicles. And earlier this month, Ford announced that it would take a $4.1 billion hit due to the closure of three manufacturing plants in Brazil.
Reviewing Ford for JPM, analyst Ryan Brinkman notes several factors that will support the stock.
“We find Ford shares attractive given valuation only roughly in line with history despite a number of significant positives, including (1) a substantially refreshed vehicle lineup including hot new introductions such as the Mustang Mach-E battery electric crossover, new Ford Bronco (>190K reservations), Bronco Sport, and upcoming F-150); (2) a refreshed F-150 has historically led to a substantial improvement in North American profitability, which we expect by 2Q21; (3) the “Bold Moves” Ford is taking to right-size its international operations, including most recently in South America, we think will free up capital for use in initiatives investors are likely to reward more, such as its electrification and autonomous efforts,” Brinkman wrote.
In line with his bullish comments, Brinkman upgraded his stance on F, from Neutral to Overweight (i.e. Buy), and set a $14 price target, implying an upside of 25% for the year ahead. (To watch Brinkman’s track record, click here)
Overall, Wall Street is inclined toward caution here, where JPM is willing to take a risk. The stock has 12 recent reviews, breaking down to 4 Buys, 7 Holds, and 1 Sell. The shares are selling for $11.19, and the average price target of $10.01 indicates ~11% downside from current levels. (See Ford’s stock analysis on TipRanks)
General Motors (GM)
General Motors, best known by its initials, is the largest of Detroit’s automakers, with a market cap of $75 billion. The company has seen 58% share gains in the past 12 months, and is up 210% from its corona-induced low point hit last March.
GM’s recent performance has impressed auto industry watchers. In Q3, the company showed $35.5 billion at the top line, its best quarterly revenue in the past four quarters, and matching its 3Q19 results. Income was $4 billion, or $2.78 per share, a year-over-year jump of 74%. Fourth quarter results are due out on February 10, but preliminary sales figures show a 4.8% gain yoy, despite an 11.8% fall in US auto sales for the year.
The company has outperformed its industry in Q4, and for the full year, on the strength of its pickup and SUV lines – a testament to the ongoing popularity of mid-size trucks in the consumer market. Other strong-selling models include the fully electric Chevy Bolt, whose sales are up 26%, and the classic Chevy Corvette, which has seen sales rise 20%.
GM has also been ramping up autonomous vehicle work through the Cruise division. In January, the company debuted the Cruise Origin, a production model for a driverless vehicle. The Origin is designed from the start as an autonomous vehicle, and so does not have a manual steering system. Future production will be centered at the GM Detroit-Hamtramck plant; for now, the vehicle is in testing on the streets of San Francisco.
In his notes on GM for J.P. Morgan, analyst Ryan Brinkman sees steady growth ahead.
"GM’s 4Q20 global light vehicle production tracked +16% y/y, solidly better than was expected back in mid-October… GM’s trend in production in 4Q was stronger than Ford’s, given non-repeat of the UAW strike negatively impacting both 3Q and 4Q 2019… 4Q20 GM production outside North and South America tracked materially better than expected back in mid-October, driven by strongly recovering sales in China,” Brinkman commented.
To this end, Brinkman rates GM shares an Overweight (i.e. Buy), and his $63 one-year price target indicates his confidence in 21% upside potential.
All in all, GM has built its Strong Buy consensus rating on solid performance which has attracted 12 Buy ratings in the last three months, as opposed to only 1 Hold. This stock is selling for $52.04, and the $55.50 average price target implies an upside of ~7%. (See GM stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.