Value investors looking for stocks could very well stumble into the Detroit automotive industry, with shares such as Ford Motor Company(NYSE: F), General Motors(NYSE: GM), and at least for this exercise, Stellantis(NYSE: STLA) all trading at cheap valuations as intense competition in the EV industry, among other issues, has weighed on financial results.
But really, out of those three automakers, there's only one worth owning right now: General Motors. Here's why.
Problems mount
All three automakers are struggling mightily in China amid intense competition and pricing pressure from domestic brands. That said, Ford and Stellantis both seem to have many more issues to solve currently than GM.
Consider that Ford's second-quarter earnings had a massive miss due to the heavy losses in its model-e electric vehicle (EV) division, as well as higher-than-expected warranty costs and general operational inefficiencies. Stellantis has been under heavy investor pressure amid falling sales and profits, a large management shake-up, layoffs and buyouts, a United Auto Workers (UAW) conflict, and ruffled feathers with its dealership network, among other things.
It's been a rough year, and the momentum of all three stocks is represented well in the following chart.
Why General Motors?
General Motors has a blend of multiple factors that make it the only Detroit automaker worth owning currently. It trades at a paltry price-to-earnings ratio of 5.6, returns massive value to shareholders through share buybacks and dividends, has shown promise in reducing EV losses, has upside with its futuristic robotaxi business Cruise, and is beginning to turn things around with earnings.
First, let's look at the company's efforts to return value to shareholders. GM has bought back billions of dollars' worth of shares and increased its dividend, which forms a nice "X" on the graph as outstanding shares decrease and the dividend moves higher -- it helped drive the stock higher as the strategic moves were made.
GM Shares Outstanding data by YCharts
Let's take a quick look at its improving financials. During the company's recent third quarter, it raised earnings guidance for the third time this year due to strong pricing and demand, paired with improving costs. More specifically, GM grew U.S. retail market share with better-than-expected pricing, balanced inventories, and below-average incentives.
General Motors has focused on profitability, and its updated internal combustion engine vehicles are more profitable than outgoing models. The automaker expects to trim losses on its EVs by $2 billion to $4 billion in 2025 -- that would help drive the company's bottom-line significantly.
Further, the company let investors and analysts know that it now makes money even on entry-level vehicles including the Chevrolet Trax and Buick Envista subcompact crossovers. That's important, because some of GM's competitors have completely left the segments because they couldn't make a profit there.
While Cruise has faced its fair share of headaches, regulatory hurdles, and backlash over driving incidents, the company has resumed rides, and Cruise could turn out to be the most valuable part of General Motors in 20 years if the robotaxi industry develops the necessary technology to run these vehicles profitably and, more importantly, safely.
What it all means
While Ford boasts a very robust dividend yield of 5.3%, which could very well be enough to attract some investors, the stock has lost traction over the past 10 years with an 18% decline compared to the broader S&P 500 index's 195% rise. Stellantis has more issues popping up than the latest whack-a-mole game, and a management shake-up hasn't done much to inspire investors, at least not yet.
General Motors, on the other hand, has momentum with its growing market share in the U.S., improving financials, and upside with Cruise. It returns significant value to shareholders while trading at a cheap valuation -- it's easy to see why General Motors is the only Detroit automaker worth owning currently.
Should you invest $1,000 in General Motors right now?
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Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool recommends General Motors and Stellantis and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
