Otherwise, Ford Motor Company (NYSE:F), like its larger cousin General Motors Company (NYSE:GM), is recording outstanding North American results, but being dragged down by a long-term recessionary Europe, with little hope in sight. European sales in the first quarter were down 8% over already depressed 2012 sales. Ford is attempting to “right-size” its European manufacturing, but no matter how one slices it, the division is going to lose in the neighborhood of $2.4 billion this year. First-quarter sales in North America were a 10-year high, and Chinese/Asian sales are also strong. But Europe’s morass will drag down Ford’s earnings this year to roughly $5.7 billion, or $1.45 per share, up marginally from 2012.
Looking ahead, I cannot help but think the European situation will improve; either that or a company like Ford should just walk away. There is little doubt that absent a macroeconomic calamity, Ford Motor Company (NYSE:F)’s North American Business will continue its success. Ford has also doubled its dividend to an annual $0.40 per share in the first quarter, driving the yield to 2.8%. Of the big auto companies, Ford is probably my favorite for those interested in a long-term holding in the auto industry.
The worldwide juggernaut soldiers on
Toyota Motor Corporation (ADR) (NYSE:TM) is a company that is hitting on all cylinders right now. Not only does it have a nearly 50% market share in its home market, in the first quarter, it actually increased its European sales by 4% versus the same quarter of 2012. Net for 2012 was double that of 2011, in part due to earthquake-related struggles in the earlier year, but Toyota seems over its product quality issues. Yet there is always room for improvement, and management’s latest goal is to reclaim its high-performance heritage of the 1990s-era Supra, in order to update the company’s fairly “frumpy” image.
For fiscal 2013 (started April 1, 2013), boosted by a new and improved Corolla, I look for strong revenue and profit growth for the company worldwide. I look for earnings between $9 and $10 per ADR, versus the $7.24 in fiscal 2012. And out to mid-decade I look for the company to eclipse its 2007 high of $12.93 per ADR. The only reason I prefer Ford to Toyota is my own provincial bias. Toyota would make a fine long-term holding for many investors.
Getting out from the government’s umbrella
Unlike Ford Motor Company (NYSE:F), GM received government money late last decade, and then still went through a bankruptcy proceeding, after which the U.S. Treasury held the bulk of ownership, nearly 61%. But a series of government sales of GM stock has whittled that stake down to under 14%. The treasury will lose money on its initial $49.5 billion bailout, but GM is again a productive corporate employer with over 200,000 individuals. The company’s return to normalcy was confirmed by Standard & Poor’s announcement that GM would be again included in its 500 index.
GM is this country’s largest automaker, with a worldwide market share just north of 11% in the first quarter of this year. That market share stands to rise as GM continues its robust pace of introducing new and updated vehicles.
Financially, GM’s situation is similar to Ford’s, with the North American and Asian markets going well, and Europe being a substantial drag on earnings. But GM appears ahead of Ford in adjusting itself to economic realities in Europe. Citigroup analysts see GM losing about $1.5 billion this year in Europe, and expectations are to break even there by 2016. If that happens, and margins expand like I believe, GM can be an earnings juggernaut, and near 20% annual profit growth is possible over the next three to five years. I see GM as having perhaps more upside, but perhaps a bit more risk than Ford or Toyota.
Summary
Automotive companies are benefiting generally from prolonged low interest rates and steady, albeit slow, economic growth. I believe many of these companies, save for Tesla Motors Inc (NASDAQ:TSLA), are undervalued relative to the earnings strength and would make fine additions to many portfolios.
Bill Edson has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and Tesla Motors . The Motley Fool owns shares of Ford and Tesla Motors.
The article 2 Undervalued Automakers to Consider Now, 1 to Watch originally appeared on Fool.com.
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