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Best Auto Stocks for 2019 – Should I Buy Ford Stock, Tesla Stock, GM Stock or Fiat’s Stock

Best Auto Stocks for 2019 – Should I Buy Ford Stock, Tesla Stock, GM Stock or Fiat’s Stock


hey YouTube I’m Jimmy in this video I’m
gonna walk through my analysis of the US auto industry I’m gonna touch on four
different companies Ford General Motors Fiat Chrysler and then I’m gonna put
tesla are in there even though test is a little bit different so the questions
were trying to answer our which of these auto companies are the best investment
and where would they fit in our portfolio so the entire auto industry is
huge and complex and I could easily drag this video on for hours talking about
things like autonomous vehicles emissions requirements hybrid cars
versus electric cars batteries the different regulations coming down that
you know helping or hurting Tesla pricing of vehicles things like that but
for this video I’m mostly gonna stick with the numbers and we’re gonna try to
see what story the numbers are telling us and trying to determine whether or
not we think that these companies are good investments and how we could try to
profit from them now I believe that the auto industry is largely about margins
and I’m sure you probably remember this but when the economy goes bad
well the auto industry tends to do quite terrible and like they did back in 2008
and frankly I think that this has a lot to do with their margins and it also has
to do with the fact that the auto industry tends to be very cyclical
meaning that when the economy slows the revenue of the auto industry tends to
slow as well so here’s revenue for the industry going
back to 2008 now we can see that Ford goes all the way back to 2008 Tesla’s
also showing the early signs of revenue going back to 2008 GM pops up in 2009 and fiat-chrysler pops up in 2013 even though all these company existed all of
these companies existed in 2008 well with the bailouts and mergers and all
the different things that happened with each of the companies this is where
their revenue starts so I kept it this way just to try to make them more
comparable based on the way those businesses are structured today so I
have to look closer at each company’s numbers we’ll look to see where the
opportunities are so let’s start with Ford when we eliminate all the other
companies we could see this is a chart of Ford’s revenue now since the Great
Recession in 2009 we can see that they’ve been growing mostly they’ve had
a few pull backs here and there but nothing too major when we add gross
profits well we can see that it’s somewhat flat
it’s somewhat small in fact in 2017 gross profit margins for Ford were just
10% and this gets to one of the real issues of the entire auto industry
because although Ford has one of the lowest gross profit margins from our
group while the whole industry isn’t that good to put this in perspective
coke in 2017 had gross profit margins of 63% another funny example is General
Electric or GE has gross profit margins of the very same 10% and you may have
seen some news that they’ve gotten destroyed over the past couple years now
part of this isn’t Ford’s fault the reality is that it’s a nature of the
business making cars is a very capital-intensive business meaning that
they need to build factories they need to buy raw materials they need to
maintain all of the factories that they have they need to pay all the employees
of the machines or whatever they’re doing but it’s very expensive and then
when they go to sell their product well the competitor next to them is doing
everything they can to discount their products as much as possible so you end
up with you end up with very small profit margins so now when we add net
income we could see that their net income looks very similar to gross
profit although Ford’s net income margins in 2017 was just 4% okay now
let’s look at the other companies and see how they compare here’s a chart of
GM’s revenue and we can see that GM hasn’t done all that much either now
when we put up gross profits we could see the gross profit margins are
actually improving recently in fact in 2017 GM had gross profit margins of 21%
when we compare that to Ford’s 10% they look fantastic
well when it comes to net income net income didn’t do quite as well in fact
their margins came in at about 7% for 2017 now jumping over to fiat-chrysler
we could see that their revenue began climbing in 2013 and 2014 and then that
was after they merged both Fiat and Chrysler merged in 2014 and then after
that revenues stalled out a bit now when we add gross profits we could see the
gross profits are okay they came in about 15% when we add net income we
could see that net income has been doing decent in the past couple years but net
income margins only came in at about 4% which was about what Ford did okay now
on to Tesla and test is a whole different beast because
they’re doing such different things than the other companies so we look at
Tesla’s revenue we can see that Tesla’s revenue looks fantastic in fact revenue
almost tripled in two years from 2015 to 2017 and that’s that’s amazing now when
we add gross profits we could see their gross profits seem to be growing as well
now Tesla’s gross profit margins came in about 23% in 2017 that’s the best of all
the four companies that we’re looking at then when we switch to net income we
could see that net income has been consistently going the other way now
this is a bit unusual because generally if revenue rises and gross profits rise
well net income should rises as well it certainly shouldn’t go in the other
direction so I dug into their financials to see what I could find as to why this
happened and it turns out that Tesla added expenses in a few different
categories first they had more interest expense their interest expense came
about because they took on more debt now remember when we said that revenue
tripled from about five billion to 12 billion well their long-term debt more
than quadrupled over that very same time period coming from about two billion to
more than nine billion from 2015 to 2017 then Tesla also increased their selling
and general administrative expenses or SGA and they also increased their
research and development now R&D I’m actually okay with because
of what Tesla does they’re a bit different they’re trying to figure out
how to make a better car so them having a huge R&D expense makes a lot of sense
so I’m personally ok with that from an invest ability standpoint so now
the question is how investable is the auto industry so how about we start with
forward p/e so fords forward p/e comes in at about 6 x GM comes in at about 5.5
x Fiat has a forward p/e of about 4 X and then Tesla has a forward p/e coming in
in about 40 X now don’t forget Tesla hasn’t been profitable up to this point
so they wouldn’t have a trailing p/e so in order for them to have a forward p/e
that implies that at least some analysts believe that tesla is going to make a
profit going out the next 12 months now Tesla is actually an anomaly here because
Tesla is more trading on what we’ll call the disruption factor and many investors
are banking the fact that tesla is going to change
the industries and in many ways they probably already have but from a
valuation perspective it’s not really fair to compare these the real question
for us with Tesla is that we if we were to invest in Tesla
what we’re banking on is that they’re going to turn profitable and they’re
going to clean up some of the issues that they’ve had over the past year or
so so how should we value Tesla well p/e doesn’t really work because they don’t
have a history of profits so we have nothing real to compare it to we could
try using enterprise value to EBITDA and currently their forward
enterprise value to EBITDA is about 15 X when we compare that to the one year average
well they have an average of about 28 X now I’m not sure we should be trading at
the 28 X because so many things have shifted for them but I could easily make
a case for 20 X now here’s what Tesla’s chart looks like and we could see that
they’ve been all over the place over this past year and at the end of the day
they didn’t really move much at all so if we were to apply a 20x we’d end up at
about the $365 level now if I were to add this to my portfolio well I would
have to be ready for some crazy volatility look at the price swings with
this thing and I’m afraid that if they don’t pull off what they’re promising
then the stock may tank just because of it but if they do pull it off it has the
potential to really swing higher because people love what they’re trying to do
okay now let’s jump back to Ford now out of the big three US auto manufacturers
Ford has the highest p/e ratio although they do have a dividend yield of more
than 7.5% now their dividend has been fairly flat lately and they have thrown
in some special dividends so if dividends of what we’re after then
Ford could be a pretty good play I mean 7.5% is a fantastic
dividend yield when you consider that the S&P 500 is closer to 2% hopefully
they’re able to improve their margins by 2020 which will help for me will help
claim the fear that if the economy goes gets in trouble Ford would get in a lot of
trouble ok now let’s look at GM now GM has a p/e ratio of about 5.5 X and we
also saw that GM has pretty decent margins GM also has a dividend yield of
about 4.5% so that’s pretty good
it’s not quite as good as Ford Ford’s is but it’s still decent they also have a
better margins which in theory implies that they have a larger safety net than
ford does so what about Fiat Chrysler well their PE is the lowest of the group
at about 4X now currently Fiat Chrysler doesn’t pay a dividend so they
have no dividend yield analysts are expecting for both their revenue and
profits to creep along slowly over the next couple years but for me there just
isn’t too much exciting about Fiat and I think that they seem to be deserving of
the lowest p/e of the group so where do we think each of these companies belong
in our portfolio personally I think Fiat doesn’t belong anywhere if we would add
Tesla well if Tesla does go ahead and shift the industry and they do pull off
what they’re trying to do I think that it could be an enormous upside even if
it would be way overvalued but I think that you would get an incredible pop in
the stock but I think if it’s gonna be in our portfolio needs to be in the
portfolio as a speculative play because it’s possible that they trip and they
stumble like they did in this past year and you end up with the stock that goes
nowhere and that could be dangerous or you could even end up with a stock that
collapses if for some reason things aren’t able to get in line for them now
if we buy Ford clearly we’re doing it for the dividend
and any sort of recession that may hit well that could really hurt them the
dividend we probably make us feel a little bit better about it so for me I
think that Ford could be a good position in a dividend portfolio preferably a
small position just incase the economy does continue to struggle or
struggling against worse then with General Motors well I think adding GM
could be good because it has a decent dividend yield it has a bit more
stability than Ford so I would actually want to add that to our dividend
portfolio as well probably on top of the ford position so it would be Ford let’s
say at whatever percentage and then I would make the GM position even bigger
because I think GM has a bit more stability although its dividend yield is
a little bit lower but what do you think would you add any of these companies to
your portfolio let me know what you think in the comments below and if you
haven’t done so already hit the subscribe button if you if you found
this video to be informative hit the thumbs up and thank you for sticking
with me all the way into the video and I’ll see in the next video thanks

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29 thoughts on “Best Auto Stocks for 2019 – Should I Buy Ford Stock, Tesla Stock, GM Stock or Fiat’s Stock

  1. How many stocks are you planning to add on each portfolio.. it needs to be big enough so can diversify even with two auto makers ( similar companies). I love ford but little concerned about the ability to continue paying it with the slowing numbers from China and the tariffs..

  2. I’ve been holding onto ford stock for a long time and keep it for the dividend and hope that the future will be better. Probably should have sold. Fiat Chrysler, I just can’t when I find their products so bad! And gm is getting close to that! Lastly, maybe I’m just too old and grouchy to put up with Elon but at some point his actions will hurt Tesla and I don’t see how he’s not sitting in Martha Stewart’s old cell for some of what he’s done already.

  3. Bought Ford and GM for the dividend earlier this year before they really got hit hard. They were like you recommend, small positions. Think they will be fine long run.

  4. Well done. I own Ford and continue to buy them in 2 of my portfolios. Dividend history is good except 2007-2011 where they cut it completely. So that is a concern with them, but I also see the possibility of some growth if they get their electric vehicles selling and continue to invest in the technology. They are working with VW on that sector as well, so it's possible.

  5. I would have liked to see some discussion of dividend coverage ratios. F and GM don’t seem like compelling plays for capital appreciation currently, so I’m not concerned with valuation as much as I am their ability to maintain the dividend.

  6. I wouldn't go anywhere near Tesla while Musk has anything to do with it. Something smells very fishy with that company.

  7. Great video Jimmy!

    Tesla is currently the biggest position in my portfolio (~20%). I entered at ~$300 in September and I'm planning to add some more shares with the recent drop, and hope for even further drop after the earnings release so I can add even more at a discount. On a side note, I think we shouldn't really consider Tesla as a car company only, as their solar roof and power wall have huge growth potential, even if they are not pushing that hard with them at the moment. Tesla's ultimate goal is sustainable energy for the world, not just the coolest EVs on the market.
    Some people are even suggesting that Tesla could enter the transportation business when they make their cars fully autonomous and eat some of Uber's cake… that's a bit abstract to me yet, but looking forward to seeing what's happening.

    If had to pick between GM and Ford, I'd probably choose GM even with the lower dividend, just because Ford is way behind GM with the EVs, but in general, if I'm looking for dividend I'd go with AT&T probably 🙂

    P.S. I'm mostly looking for growth instead of dividends.

  8. Ford and Tesla were the only car companies to make it through the recession without bailouts. Therefore they're the only automotive companies I'll invest in.

  9. Once that Tesla closes a profitable fiscal year, that would be a game changer. And also if you'd want to profit from the EV market, Tesla is years ahead.

    Great video, as per usual, Jimmy!

  10. All Tesla Model 3, S, X sales dropped 75% from Dec 2018 to Jan 2019: https://www.latimes.com/business/autos/la-fi-hy-tesla-sales-plung-20190201-story.html

    Demand is falling off the cliff.

  11. Unless I missed it you didn't mention the fact that GM is a LEADER in autonomous driving with Cruise. Do you think they have potential to capture the self-driving market in the near future, especially considering Tesla's troubles with production and pricing?

  12. You do a great job Jimmy. I appreciate all your efforts. Look for Ford in crease profitability by focusing on Trucks/SUV's. They are converting plants now which will add hundreds of millions a year. The public has an insatiable appetite for Tucks/SUV's and it will only continue to grow. Ford is positioning themselves perfectly. I personally think this is where the battle will be won…not in electric or autonomous vehicles. The US is not accepting the electric "revolution", as maybe China and Europe. Even hybrids are slow sellers In the US. Full electric sales are below 3% in the US now. The recent pop in Ford may only be the beginning of a very healthy run for the dividend, even in a slow down. The dividend is a deal maker.

  13. Hi Jimmy
    Do you think that the market is extremely overvalued? Consider the Wilshire GFP at over 170%, index investing that drives all the market up, very low interest rates that spur tons of money into the market, huge buybacks…to name a few.
    What should we do???

  14. I would only buy TSLA of these. And only below levels of 200. Then I would acknowledge the risk but still take it.

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