Here in my car, I feel safest of all. Morgan Stanley believes that autos and auto-related stocks are looking attractive as market expectations and share prices “have fallen sufficiently,” improving the risk-reward outlook for the coming 12 months. The four key factors driving this change of heart are: 1) Seasonally-adjusted U.S. expectations have fallen sharply; 2) Fears of a Japanese price war are overdone; 3) Fears of mix deterioration are overdone; and 4) Poor stock performance reflects significantly lower sentiment. Additionally, the brokerage made GM its top pick in the sector replacing Ford.
In a note to clients, Morgan Stanley said, “GM is highly levered to both North America and emerging markets and represents an out-of-the-money call option on new product and management.” They also point out that the restructuring and management change that came from the company’s bankruptcy have provided GM an opportunity to take additional top line risk.
GM recently released its June sales numbers, highlighted by positive results overseas. In China, the company saw sales improve by 10% to 193,878 vehicles reversing two months of negative growth. In the U.S., sales improved by 10.6% to 215,355; however, the company estimated that industry sales at dealerships (excluding fleet sales) fell to an annualized rate of 9.4 million from 9.7 million in May.
General Motors (GM : NYSE : US$31.19), Net Change: 0.33, % Change: 1.07%, Volume: 13,957,618
Ford Motor (F : NYSE : US$13.96), Net Change: -0.14, % Change: -0.99%, Volume: 45,912,521