Q2 earnings season as a whole was a fairly mixed bag, with the latter part marred by downbeat results and visibility from consumer facing companies like ANF, COH, RL, M, TGT & PNRA, which caused many pundits to wonder aloud whether the resilient U.S. consumer is getting tapped out. Yesterday’s release of auto sales here in the U.S. either suggests that consumers delayed purchases in almost every other category for most of the second quarter so they could buy a car in August or rising rates caused a last dash for car buyers. Whatever the reason, the 17% increase in auto sales in Aug was the highest since November of 2007, with the average transaction price for cars hitting an all time record was nothing short of impressive.
Not surprisingly, F and GM saw their biggest single day gains in more than 6 months up 3.5% and 5% respectively. The reversal of fortunes of U.S. automakers since the great recession has been fairly remarkable. The stocks are both up more than 70% in the last year alone. On numerous occasions in the last year Enis has made the point that the long U.S. auto trade has been a far cheaper way to play the U.S. housing recovery as truck sales have been very closely correlated to housing.
So the question you have to ask yourself if you are long GM or F, is this as good as it gets?? Have the autos done the impossible in an atypical recovery that lacks impressive jobs and income growth? I certainly don’t have the answer as to punt the stocks if you own them, they remain fairly cheap by most valuation metrics to the broad market, but just as homebuilders topped out earlier this year, well before anyone was ready to call the end to the housing recovery of the last few years, I would suspect that other beneficiaries of said recovery could take a pause if the retail results of Q2 turn into a trend.
If we were playing “Would You Rather?” between F and GM, I would probably go with F as they pay a dividend that yields 2.37%, vs GM that does not pay one, both share similar expected earnings growth with fairly similar valuations. The one exception here is that the U.S. Govt still owns 189 million shares of GM (largest shareholder.) While this is likely to remain an overhang, and will prevent the company from paying a dividend anytime soon, the clean up of the Govt’s stake could be the next real catalyst for the stock (much like AIG in the last year). So in the intermediate term F will likely remain the “own” of choice, but as the Govt gets down to “tag ends” of their stake, the tables could turn in favor of GM.