Why GM and Ford shares languish
Question: Is Wall Street:
(a) A teacher handing out report cards?
(b) A Las Vegas sports book?
Executives at Ford Motor Co. and General Motors at times seem to
think the answer is (a). They are chagrined that their genuinely
impressive financial results have not won them more love on the Street.
Instead, share prices are sluggish. Ford has been trading in the low
$13 range, roughly in the middle of its 52-week average. GM has been
around $30, again mid-range over the past year.
So you had GM CEO Mary Barra complaining to Bloomberg TV this week
that GM’s stock price is undervalued. Dan Amman, GM’s president, has
said that eventually the market will recognize the company’s progress in
building profits.
Likewise, Ford CEO Mark Fields earlier this year countered questions
about share values by saying, “We’re going to focus on continuing to
drive the business forward. At some point we’re going to get
recognized.”
Well, maybe.
Looking from one perspective, Ford and GM deserve to see stock prices
soar, based on their sky-high profits. GM posted $10.8 billion in
pretax operating income for 2015. Coincidentally, Ford also raked in
$10.8 billion pretax.
That used to be “Toyota money” that Detroit automakers could only
dream about. (Toyota now makes a ton more that that, but that’s a
different issue.)
But, to get back to my initial question, the Detroit duo would only
get “recognized” if Wall Street functioned like a schoolteacher, handing
out “A” grades for operational excellence.
For better or worse, Wall Street is more like a Vegas oddsmaker
setting the spread for sports bettors. Wall Street is trying to forecast
how much a stock will go up.
And for reasons ranging from the sales cycle (possibly peaking) to
potential business model disruption (Google, Apple), the street is
skeptical about the GM and Ford upside -- which, I suppose, eventually
becomes a self-fulfilling prophecy.
How much more exciting to prospect for the next Tesla! Hard to
recall, but Tesla traded below $25 in the first month after it went
public on June 29, 2010 (and dipped below $15). Tesla closed down 2.6
percent today at $229.34, so you can calculate for yourselves the
get-rich “if only” scenario.
That’s why I think GM and Ford might as well get used to their stock
values. Despite vastly improved operations, GM and Ford look like
buy-and-hold stocks, great if you want to collect dividends over the
years.
But that’s just not sexy when you have Silicon Valley stocks blowing through the roof.
