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George Soros vs Ray Dalio: GM or Ford, That Is the Question

November 18, 2013 | About:
Patricio Kehoe

Patricio Kehoe

7 followers
When it comes to U.S. auto manufacturers, opinions are usually divided. While investment guru George Soros is bullish regarding General Motors Co (GM), Ray Dalio has displayed confidence in Ford (F)’s future, by entering the company a few weeks ago. It is yet too early to pick out a winner, but some key differences between these two companies need explanation before you decide which guru to follow.

Size Matters [/b]General Motors is still the market leader in the U.S., with a share of around 18 percent, yet Ford is not far behind with 16 percent. Nevertheless, the first thing to keep in mind is that General Motors is one of the three major auto manufacturers in the world, along with [b]Volkswagen AG (VLKAY) and Toyota Motor Corp (TM) , surpassing its German rival in sales volume, according to the latest third quarter results.

The size of the firm is important, since the auto industry is global, and has elevated fixed costs which can only be counteracted by large economies of scale. A firm the size of General Motors, with annual sales surpassing 10 million units, has a clear advantage over competitors. However, the company is also undergoing restructuring efforts, as it seeks to recover lost ground through reorganization and innovation. Special focus has been set on Europe and Russia, with sales structures being altered around General Motors’ Opel brand, in order to boost revenue. These efforts are bound to pay off as Russia is on the way to become one of the largest markets for European cars.

In addition, the company’s scale has allowed it to profit heavily from the recovering U.S. auto market, which accounted a 28% increase in operating earnings. According to the firm’s third quarter results, YTD sales have increased by a whopping 8.3% in the region, and are expected to continue rising in the near future. These results are indicative of General Motors turn around following its bankruptcy in 2009. The company now boasts more cash than outstanding debt, and by April 2014, the U.S. government will no longer be a shareholder.

Despite not having the best financial position, General Motors has a great future outlook, which George Soros is keen on profiting from. And, at 10.9 times its trailing earnings, shares are currently available at a 28% price discount relative to the industry average. Good results in 2013, projections for sales increases in Europe and the U.S., along with a low price for entry, make me feel bullish regarding this auto industry giant.

Common Vehicle Platforms and Financial Strength

Ford might not be as large as General Motors, yet it remains a highly competitive car manufacturer with a global presence. The firm has delivered amazing results in 2013, deriving most of its profits from the U.S., its core market. The F-Series have done particularly well, ranking as the most sold vehicle in the U.S. with more than 623,300 units.

Internationally, Ford is also on the rise, with market share and revenue increasing in South America, the Asia Pacific region and Africa. Even the European market delivered positive results, as consumer confidence is once again on the rise, albeit slowly. Fuel efficient vehicles, such as the revamped Fiesta, Focus, Fusion, and Taurus, are largely responsible for the increases in revenue, and are expected to continue delivering positive results for Ford.

Although the firm lacks General Motors’ size and scale, it beats its U.S. rival in terms of common vehicle platforms. This not only allows Ford to reduce the importance of General Motors’ scale, but reduces costs and enables production to be switched quickly to meet demand. Over coming years, the company intends to produce most of its vehicles based on just a few platforms, a strategy which is already proving to be successful.

In addition to the great results achieved in 2013, and a bright outlook in terms of revenue gains, the firm is repaying shareholders for their confidence. Unlike General Motors, which is still struggling with negative operating margins, Ford recently doubled their annual dividend yield to 2.3 percent. The company’s financial strength and future prospects were further boosted, when all major rating agencies gave the Ford an investment-grade credit rating. Also, the stock is currently trading at 12.1 times its trailing earnings, higher than General Motors’ 10.9, but still at a 20 percent price discount relative to industry peers’ average. Considering all the above, I cannot do anything but coincide with Ray Dalio, and feel highly optimistic about this stock’s future.

Follow the Gurus [/b]Whether you chose to trust George Soros or Ray Dalio, seems largely insignificant, as both General Motors and Ford are doing great. Nevertheless, I feel inclined to opt for Mr. Dalio, as Ford not only has great projections within the U.S., but also internationally. In addition, the 2.3 percent annual dividend yield is very attractive for shareholders. Ford is not only financially stronger than General Motors, which still has the U.S. government as a shareholder, but seems to have the edge on common vehicle platform production. Hence, I feel just a bit more optimistic regarding Ford stock.

[b]Disclosure: Patricio Kehoe holds no position in any stocks mentioned.


About the author:

Patricio Kehoe
A fundamental analyst at Lone Tree Analytics

Rating: 4.1/5 (7 votes)

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