Wall Street Week Ahead: Strong Sales Could Shift Ford, GM to Higher Gear

30 May 2015 | Author: | No comments yet »

Car Sales in May Could Trigger Ford, GM Rally on Wall Street.

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.Number-crunchers are paying close attention to the automotive space, as “Big Three” American automakers Ford Motor (NYSE: F), General Motors Co. (NYSE: GM), and Fiat Chrysler Automobiles are set to announce May sales statistics next week.

Investors hope good numbers will lift the sector, which is currently languishing thanks to a poor showing in April as well as several embarrassing recalls. These stats, analysts believe, may be enough to trigger a rally for Ford and GM stocks, after months of recalls and uninspiring growth figures had taken their toll on share prices; Data from Edmunds suggests that May sales may come in at about 1.6 million new cars and trucks, good for an annualized rate of 17.4 million vehicles, with seasonality taken into account. And while April was a tepid month, May could represent a big comeback, thanks to lower gasoline prices driving demand for trucks and sports utility vehicles, both of which cost more and generate larger profit margins. Additionally, consumer froth has been building up since the global economic recession, with Americans sticking with their vehicles for longer than usual. “This is going to be one of the best months ever,” predicted Mainstay Capital Management chief investment strategist David Kudla. His forecasted May statistics include sales hitting $40 billion, which is close to the record of $40.3 billion set in August 2014, while he also noted that the average age of cars in the U.S. is between ten and eleven years.

A major reason may be that lower gas prices encourage people to buy sport utility vehicles (SUVs) and trucks, automobiles that are more expensive and have better margins. Another variable that may contribute to better sales in May is the recently concluded Memorial Day weekend. “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,” posited Edmunds senior analyst Jessica Caldwell. At the close of trading yesterday, GM was trading at $35.97, a decline of 1.15 percent, while Ford’s share prices were at $15.17, down 0.78 percent from the day prior. David proudly stated that the car sales have reached this level despite the fact that average car age in America is estimated to be about ten to eleven years.

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. If the sales statistics of automotive products come according to the expectations then the auto stocks could rally but this change could compel the U.S Federal Reserve to raise the interest rates more early then the planned schedule. 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.

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. 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.

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