Investors currently keep a close watch over automotive industry, since Wall Street has high expectations of it and two of its major players – General Motors and Ford.
Car sales data for May is expected to be released by next week so analysts hope for a rebound after several months of recalls and sluggish growth.
Analysts claim that this month’s sales would reach record levels if estimated sales of 1.6 million new vehicles are true. If the number is correct, the industry would have sold nearly 17.5 million new cars over the last year.
David Kudla from Mainstay Capital Management in Grand Blanc, Michigan, believes that May would be the best month in a year. He hopes that sales would top $40 billion, which would make May 2014 one of the best months after August 2014 when the sales reached $40.3 billion.
In April, retailers reported meager sales, but the Street estimates that May would mark a new beginning due to cheaper gasoline. For that reason, customers may feel encouraged to buy expensive vehicles such as SUVs and trucks, experts said.
Analysts also base their expectations of a strong rebound on an increasing demand of new cars since many owners hadn’t changed their old vehicles since the beginning of the financial crisis. An agency reported that in the U.S. the average age of cars is between 10 and 11 years.
Edmunds.com recently stated that this year’s Memorial Day may have helped as well the boost in sales because potential buyers had a longer vacation to ponder on their options in buying a new car.
Analysts also mentioned the recent growth of auto loans as a signal that the market experiences a clear rebound. They also seemed confident that the rebound won’t be affected by a strong currency or the recent GM’s ignition recall scandal.
General Motors and Ford stocks are severely undervalued at this moment, experts claim. The price-to-earnings ratio (P/E) of General Motors is well below S&P 500’s 17.4 ratio at 7.62. Ford fares a little better with 8.77.
StarMine, a market research firm, ranked both companies as the cheapest in S&P 500 by taking into account their intrinsic value related to their growth potential over the next decade. StarMine also disclosed that GM shares should trade at a double price than its Thursday closing price of $36.39. The firm suggested Ford stock should rise by nearly 80 percent to reach its intrinsic value.
Although Ford stock slipped 1.7 percent this year, GM experienced a 3 percent rise mainly due to a $5 billion buyback plan the company had announced a couple of months ago.
Image Source: Arabian Business
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