Saturday, November 20, 2010

Stock Showdown: GM vs. Ford

GM (GM) returned to the Wall Street scene on Wednesday priced at $33 with about half a billion shares, the largest IPO in US history.  The stock has risen about 4% since Wednesday and there is a huge bull sentiment on the stock.  A huge catalyst for this sentiment was GM's better than expected 3Q earnings last week.  The two analysts that are covering GM recommend a "strong buy" with a median target (price target over next 12 months) of 46.25.

With all of this attention going to GM, whats new with Ford (F)? Ford fell 4% on GM's debut, but managed to come come back 1% yesterday.  Ford did not deserve the whipping on Wednesday, its just that its not "hip" right now with the coming of GM.

Chevy Camaro
Ford Shelby Mustang
The real question: Is GM's stock a buy or Ford's stock a buy?

Firstly, Ford was Invest Chief's Stock of the Month last month and it posted positive gains for us.  The stock went as high as 17.42 but in the recent headwinds pulled back.  I believe in Ford because they properly weathered the downturn without any government assistance.  Not to mention Ford has been outselling all other major brands in the last few months, while GM is in 2nd and 3rd place.  GM was hit very hard during the downturn and left the NYSE, bankrupt.  GM was known as "Government Motors" because the government had and still has a huge stake in the company. 

Although GM posted great 3Q earnings, I am going to need to see more quarters like that before I can fully endorse it.  Ford has already recovered and it shows in the high customer satisfaction surveys, great sales and revenue and just overall has their organization better.  Its their organization that helped them succeed in 2008.

Summary: GM's IPO is over hyped especially when their earnings are just now getting stronger.  Not to mention over hyped IPOs tend to fall pretty hard once the hype goes away, so beware of that in the coming weeks.  Ford on the other hand has had great success for a while now and needed no government assistance what so ever during 2008.  GM has to prove that it can outperform again before I can get behind it .

Trade: Buy Ford (F)

Discloser: No positions at time of writing

Disclaimer:  Invest Chief is not held accountable to any loses sustained by stocks recommended. It is always important to do your own research of the stock before you invest. These trades and ideas are the opinions of the crew of Invest Chief. Invest Chief receives absolutely no compensation from companies that are recommended. We are a private organization, dedicated to promoting financial well being and prosperity.

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