GM and Ford: Are These Stocks a Buy?

The housing industry in the United States is not the only sector reeling from a difficult economy. We’ve seen the financial services industry (banks, mortgage companies, brokerage houses) write off billions of dollars in assets. We see high-end retail in trouble. And the airline industry is set to post billion-dollar losses.

But it is the auto industry that is the sector facing a big double whammy: On the one hand, the weak economy is cutting into the pockets of consumers and their appetite for new cars. On the other hand, higher oil prices have kept demand for traditional “gas guzzling” vehicles on a crash course.

August was the 10th straight month that sales declined for the U.S. domestic auto market. Chrysler led the way with a 34% drop in August sales; Ford Motor Company (NYSE/F) saw its August sales fall 27%; while General Motors Corporation (NYSE/GM) posted a 20% drop in sales.

In October of 2007 one share of GM stock sold for $43.20. Today that same share sells for $11.27. The last time GM stock sold this low was in 1975 — 33 years ago. Ford stock, which sold for over $35.00 a share in 1999, sells at $4.57 today.

I’m not an expert on the auto industry, and I won’t pretend to be one. The lower oil prices of the past four weeks are encouraging in that hopefully lower gas prices will bring consumers back to the light truck market. In the case of GM, it has been unsuccessful to date on selling its troubled “Hummer” division.

The reason I’m writing about the auto sector today is because I’ve been receiving many enquiries from our customers about getting in “at the bottom” of this sector. The most asked question this week: “Michael, should I get into GM or Ford stock now?”

I’m a big advocate of buying low and selling high. When you look at Ford stock and see you can buy the stock at an 87% discount to its 2007 price, it makes every investor think, “Is this a steal?”

Yes, the stock market may have discounted GM and Ford stocks more than they merit. There have been many stories and rumors about the demise of both companies. But these are the same dire predictions that arise every time the big auto companies get into trouble.

For me, I like to buy a stock when it is has bottomed out and starts to move up in value. In the case of GM and Ford, neither is far from their 52-week lows. Before turning bullish on these stocks, I’d have to see a bigger rally from their recent multi-year record lows. I have a feeling that could happen soon, which makes both these stocks well worth watching.