The “pairs trade” between Ford Motor Co. (NYSE: F) and General Motors Company (NYSE: GM) is perhaps one of the oldest pairs trades that comes to memory. While this is not a call for a pairs trade, Tactical Bulls has been reviewing some of the top tactical bull trades for June through the end of summer. GM’s stock is a clear favorite over Ford stock at the present time as Summer of 2024 is still kicking off. The question is whether or not this remains the case for the rest of 2024 after the summer.

If you believe in the U.S. car market, or the global car market for that matter, maybe you can just buy both of the big auto-makers. If it was only that simple.

The U.S. car market has to consider competitive threats from European luxury cars and Asian cars that hit all price brackets for competition. Then there is Tesla Inc. (NASDAQ: TSLA) who is outpacing likely GM and Ford sales for years ahead. And do we dare ignore the group of smaller EV-makers who came public in recent years and are still independently trading, even if they are financially troubled as a group?

Tactical Bulls currently sees GM as a clear favorite over Ford for investors at the present time. While this view is mainly targeting the summer of 2024, analysts and investors often look out a year or more. Other considerations are the historical bailouts, backtracking on EV expectations, the Tesla rivalry, GM’s bad stock history, UA car demand, market valuations, stock performance, buybacks, and many more items.

THAT OLD BAILOUT

Ford did not need the government bailout during the global financial crisis. GM did need and accept Uncle Sam’s cash. Does that matter even after GM came back as an IPO all over again and since it has more than 10 years of owing the government no money at all?

NO LONGER ALL-IN ON EVs

This is a time when the legacy car-makers have finally figured out how to backtrack on promises of electrifying the entire auto fleet by 2030. For starters, trying to move the entire U.S. auto fleet to EV by 2023, even if everyone assumed it was an exaggeration or an over-promise, made no financial sense even if the climate change lobby warns of impending doom. The move to all-EV for the USA was physically and financially unreasonable for a cash-strapped consumer and considering we have no substantial resources to fuel that move.

THE TESLA RIVALRY

Tesla Inc. (NASDAQ: TSLA) is hard to evaluate solely as an auto-maker because the company and Elon Musk are involved in so many other efforts. That said, even with many of Tesla’s woes in the last year, Tesla has enshrined itself as “USA-EV” even when the current political regime has favored big union-led carmakers over Elon Musk’s success record.

GM FACES SOLID TRUCK/SUV COMPETITION

Where GM faces continued pressure is in the highly profitable truck and SUV sales. These two portions of auto sales are generally considered the most profitable. The sales data from Q1-2024 shows GM having massive competition from Ford, and then there are Ram truck and Toyota truck sales to consider. And in Q1-2024 GM took a hit in SUV sales as well. These may not sound positive but it is always important to consider both sides of a bull-bear debate.

REMEMBER THE BAD IPO?

GM came public (a post-bankruptcy re-IPO) in Nov-2010 raising $20 billion at $33.00 per share. GM then paid back its financial crisis bailout money to the government by 2013. With the exception of 2021 when shares went from $40 to nearly $60, GM’s stock floundered from $33 to $40 for quite some time — before breaking out above $40 in Feb-2024. And then it came back down.

A DEAD DECADE?

GM’s shares have just effectively gone nowhere in a decade. Or is that true? Now GM has raised its financial guidance for 2024. The company is also buying back so much stock that some investors might think GM almost wants to take itself private. Almost.

AUTO DEMAND

Then again in June-2024, GM said at an investor conference that vehicle demand remains strong and that it has pricing power in being able to hold prices high. That is even with interest rates so high for car buyers. Does 7.7% for high credit scores seem like “normal interest rates” to buyers?

GM’s STOCK LOOKS CHEAP

GM’s stock is dirt cheap using traditional valuation metrics. At 5-times forward earnings and a low dividend yield, GM can keep buying back stock and hiking its dividend even with all the pay raises that were committed to during the strike. Oh, and GM even added an additional $6 billion to the previously announced buybacks at that recent investor conference.

GM RIGHT-SIZED EV AMBITIONS

GM has right-sized its EV ambitions. The company cut EV production in a range of 200,000 to 250,000. That’s under the 300,000 GM previously expected. GM is still allocating $850 million toward the Cruise driverless-car division, but the company is seeking additional sources to fund that business.

RECENT STOCK GAINS & UPSIDE AHEAD

The consensus analyst price target of $54.59 implies 16.5% upside remains for GM investors. Ford’s recent price of $11.80 and its consensus analyst price target of $14.04 implies almost 19% upside before considering its dividend. But before you factor in GM offering slightly lower upside than Ford if the analysts are correct, think about these stats for performance metrics:

• Ford stock is down 1.5% year-to-date (YTD) and down 17% over the last year.
• GM stock is up 31% YTD and up over 24% in the last year.

ANALYSTS BOOTING UP

GM gas some incredibly high analyst price targets as well. And some key firms just haven’t adapted a “tactical bullish stance” on GM either. BofA’s $75 price objective and Citi’s $96 recent price target for GM may seem too ambitious for just a boring car company. That said, imagine if other more cautious firms start allocating current valuations to forward valuations based on the expected share shrink from all the stock GM is buying back.

GM’s communication to Wall Street is that the company may not even need all that that robust of a U.S. car market for its stock and buybacks to hold up.

GM vs. FORD VALUATION (and TESLA)

The market cap war is hard to fathom now that there are three U.S. companies worth over $3 trillion. GM’s 30%-plus YTD gain has it valued at $54 billion. That ranks it as #160 in the S&P 500 by market cap. Ford’s $47.3 billion market cap has it ranked as #188 of the S&P 500 by public valuation. And Tesla’s nearly $600 billion market cap, even if hard to call just a car maker, is still nearly 6-times the combined market caps of GM and Ford. That ratio is even after Tesla’s stock has had a very troublesome 2023-2024.

CAVEATS

There are of course some caveats here top just how much a tactical bull would rate GM’s stock over Ford’s stock. In no way should investors expect GM shares to just keep flying high endlessly without pullbacks. It has already been pointed out that GM faces high SUV and truck competition from Ford, Ram, Jeep, Toyota and others. GM’s buyback and cash flow cushion should reasonably help to support the stock from panic if there is even a 10% to 15% pullback. Still, wary investors with more than a decade of experience can attest that the domestic legacy automakers have been great at disappointing investors. And the endless calls for “the next recession” could put a serious dent into future car demand. And what happens if the Fed doesn’t get around to cutting interest rates any time soon?