As the race to develop electric vehicles accelerates, traders are picking their favourites in the auto industry.
According to Newton Advisors President and founder Mark Newton, when comparing legacy automakers Ford and General Motors, GM appears to have a stronger chart setup, according to CNBC’s “Trading Nation” programme on Friday.
On Friday, Wedbush initiated coverage of General Motors with an outperform rating, stating that the company stands to benefit from “a renaissance of electric vehicle growth in Detroit.”
GM has underperformed Ford so far this year, with a gain of only 40% compared to Ford’s gain of 64 percent.
“Both of these stocks have had tremendous run-ups over the last 16 months,” with each stock increasing by more than 200 percent, according to Newton. “GM, on the other hand, really stands out to me as being the clear favourite between the two,” says the author.
Newton pointed out that a ratio chart comparing General Motors’ performance to that of Ford’s shows that not only is the ratio oversold, but it has recently crossed a key trend line, indicating that it is a good time to buy GM.
“The use of ratio charts like these has proven to be accurate on a variety of different pairings. I strongly advise people to take this action. However, for some people, buying Ford at 14 instead of GM at 58 appears to be a more appealing option “he explained. “Over the years, General Motors has proven to be a far superior technical stock, and it appears to me to be far more appealing than Ford at these prices.”
Two macroeconomic drivers, according to Steve Chiavarone, a portfolio manager, equity strategist, and vice president at Federated Hermes, could boost the performance of numerous auto stocks in the near future.
“We believe that there are two major themes that are intertwined in this situation. One is the EV theme itself, which we believe will be a long-term growth driver” from a fundamental and sustainable perspective, according to Chiavarone in the same “Trading Nation” article mentioned above “a meeting with a client
“Second, these are stocks with strong value cyclical characteristics. Any moderation or weakness in auto sales that we’ve seen over the last couple of months is primarily due to a lack of supply, not a lack of demand, as some have suggested “he explained. “We believe that as those supply chain issues are resolved, you will see a positive outcome.”
Because of the near-term growth spurt, the ongoing EV storey, and the still-low valuations in the auto space, Chiavarone believes that this is an attractive trade to make.
“You’re talking about an 8.5 times multiple for these stocks, or at the very least in the high single digits,” he said, adding that this represents “a tremendous value in our estimation.”