Strong Sales Could Shift Ford, GM To Higher Gear

30 May 2015 | Author: | No comments yet »

Strong sales could shift Ford, GM to higher gear.

Reuters – A Wall Street sign is pictured in front of the New York Stock Exchange, open during Winter Storm Juno, in the Manhattan borough of New York January 27, 2015.

Meeting those forecasts could be enough to lift the sector – among the cheapest in the market – putting the sting of product recalls and tepid recent growth in the rear view mirror. Estimated sales of 1.6 million new cars and trucks in May would make for a seasonally-adjusted annual rate of 17.4 million vehicles, according to Edmunds.com, a car buying platform. “This is going to be one of the best months ever,” said David Kudla, chief investment strategist of Mainstay Capital Management in Grand Blanc, Michigan.

The timing of the Memorial Day holiday also helped May sales, according to Jessica Caldwell, senior analyst at Edmunds.com in Santa Monica, California. “Because there was a full week of May after the holiday weekend, shoppers had plenty of time to take advantage of the deals being widely communicated in dealer and automaker marketing messages,” Caldwell said. “The strong dollar created a headwind, and GM had some high-profile product recalls, but given current trends, I would expect sales growth to continue.” Both GM and Ford appear undervalued at current levels. GM is the fourth-cheapest stock in the S&P by this metric, with StarMine estimating that shares should trade at $81.69, more than twice its Thursday closing price of $36.39. While auto stocks could rally if the sales come in as expected, it could spell bad news for the broader market, as any sign of consumer strength could nudge the U.S. Most analysts expect the first rate hike to come later this year, but opinions are split on whether it will occur in September or December. “Good data would make the Fed raise rates sooner. I believe the stock market would sell off (on strong auto data) because it would shorten that timeline,” said Battle who expects a rate hike in the fall.

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