We’re looking at an ideal “buy the dip” setup in the markets…
This auto giant’s stock has dropped 22% in the past year, while its top competitor has seen its stock rise 23%.
One has an impressive 6.06% dividend yield… while the other’s sits at just 0.87%.
See which one is on the road to riches… and which should be left in the dust.
Tune in for your weekly Buy This, Not That.
Click on the thumbnail to dive in.
TRANSCRIPT
Hey, everybody. Shah Gilani here with your weekly Buy This, Not That.
We have tariffs to worry about, and the tariffs are going to go both ways, primarily between the United States and China.
The U.S. has already levied 10% tariffs on some Chinese imports into the U.S. China has retaliated on selective products coming into China.
There’s also competition over precious minerals and rare earths, and there’s going to be probably a lot more. When it comes to tariffs, when it comes to negotiating, China is the prize. It’s defeating China in whatever capacity the United States wants to defeat China and using tariffs to achieve the objective, whatever it may be.
So without going into the politics of it, let me just say that U.S. car companies are going to be in the crosshairs.
They already are.
We’ve got a lot of manufacturing and finishing of U.S. products in Mexico. We know that tariffs could be slapped on Mexico. So far, we got a 30-day reprieve on those, but who knows where that’s going to fall out.
As far as U.S. exports to China and autos made close to China and in China by U.S. automakers, guess what?
That’s going to be a problem for some of them. So I want to compare today the two biggest in the United States, General Motors (GM) and Ford (F). Without going into the politics and who’s going to be particularly affected by tariffs because that’s going to be a changing landscape, I want to go in with the bigger picture about which one’s a BUY, which one is NOT a buy.
So I’m going to start with raw comparisons.
They’re really similar in some respects. General Motors has a market cap just rounding $48 billion. Ford’s market cap is $40 billion.
This is really interesting. The revenue for GM is $182.7 billion.vGeneral Motors, $182.7 billion. Now I just lopped off the rest of the numbers, but pretty almost exact as far as revenue.
Big difference in profit margin. GM swamps Ford with 6.06% profit margin. Ford’s by comparison is 1.93% profit margin.
Now I’m going to talk just a hair about some other metrics.
Ford’s quarterly revenue growth is 5.5%. That’s year over year. Quarterly revenue growth at 10.5% for General Motors, almost double what Ford’s quarterly revenue growth is.
Quarterly earnings growth year over year for Ford is down 25%. For General Motors, it’s down, but only 0.3%.
So on a lot of metrics, GM looks better, with better profit margin, better revenue growth, not positive earnings growth, but just about flat versus down 25% for Ford.
Debt to equity, again, General Motors has Ford beat. We’re talking crazy numbers here.
For General Motors, 175% debt to equity. For Ford, 359%. So ton of debt relative to its equity.
Leveraged free cash flow is the only place that Ford has an advantage as far as the balance sheet goes and cash flow. And its leveraged free cash flow is $1.99 billion on an annual trailing 12-month basis. For General Motors, leveraged free cash flow is negative $2.34 billion.
Now let’s take a look at the charts and see what there is to see here.
So I’m going to start with Ford because you’re going to look at it and think, oh boy, given what I’ve been saying about Ford, the chart’s going to be bad. Yes. And it is. Here we are trading at $10.16 pre-market this morning, as I’m recording this for you folks.
And this is a pretty ugly chart.
So that’s kind of scary. But, you know, if you think that down here, we can have some kind of lows, in the $9.50 range, then, you know, maybe not so bad.
But General Motors, you look at General Motors, you look at that chart and you think, wait a second.
General Motors in the past 52 weeks is up 23%. Now it’s come back down, but in 52 weeks, it’s up 23%. So this is a little worrisome.
Even though the stock is up nicely and trading $48 and change, we’ve had a bit of a falloff thanks to the tariff stuff. So we’ve broken through the 200-day moving average.
Now, all things being equal, Ford in the past 52 weeks is down 22%, and General Motors up 23%. So who’s a BUY? Who’s NOT a buy?
I’m going to go with Ford.
Yes. This is a bit of a breakdown here through the 200-day. I don’t like that. It’s already had a pretty good run as far as General Motors goes.
Some of the numbers certainly look better. Debt to equity a mile better, but it doesn’t matter. The stock seems to have broken down here. And I don’t know how far it has to go to fall, but it’s had a good run.
People maybe thinking about taking profits. It’s in the firing line in the tariff wars. And it’s also got some other problems with their EVs.
It just disbanded its Cruise unit. It’s cutting 1,000 people from the robo taxi service, citing excessive cost, competition, and a lack of a clear future. So it’s cutting there as it should have never probably started up. By the end, we got into that game.
So I’m going to say General Motors is NOT a buy here, people.
Even though the chart looks better, it has been better, the stock has performed better, and some of the metrics are certainly better, I’m going to say that Ford is the BUY.
Ford is the buy for a couple of reasons for me.
It’s down on its knees here, and I kind of like that.
I like buying a stock that is maybe going to hit some support, maybe consolidate down here in the $9.50 range. It’s absolutely a buy I’d like to buy right here. If it goes lower, I would buy some more, and I will.
Why? Why Ford?
Because one simple reason well, several, but the one reason I would buy Ford right here over General Motors is Ford has a very handsome dividend yield, which happens to be 6.06% here at $10 and change.
Yes. General Motors has a yield. It’s less than 1%. Dividend with a 0.87% yield. So to me, it’s just nothing to write home about.
So in other words, it’s a complete waste.
So I would buy Ford, not General Motors, for the dividend to get paid 6% to hold it and see the potential consolidation down here and move up higher, in which case you could potentially get up to, say, $14-$15, and $10.
You got a 50% gain while you’re getting paid to hold the stock.
So when it comes to Ford versus General Motors, tariff wars are going to have their impact, but dividend is more important right now if you have to choose one or the other… buy Ford, not General Motors.
That’s it for this week. I’ll see you next week. Be safe.
— Shah Gilani
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Source: Total Wealth