Traders are picking favorites in the auto space as the electric vehicle race accelerates.
Between legacy automakers Ford and General Motors, GM appears to have a stronger setup on the charts, Newton Advisors President and founder Mark Newton told CNBC’s “Trading Nation” on Friday.
Wedbush initiated coverage of GM with an outperform rating on Friday, saying the company stands to benefit from “a renaissance of EV growth in Detroit.”
GM is underperforming Ford year to date, up just 40% versus Ford’s 64% gain.
“Both of these stocks have had tremendous run-ups over the last 16 months,” more than 200% each, Newton said. “However, GM stands out to me as really being the clear favorite between the two.”
Referencing a ratio chart of GM’s performance relative to Ford’s, Newton pointed out that not only is the ratio oversold, but it just reached a key trend line that suggests it’s time to buy GM.
“It’s been accurate to use ratio charts like these on many different pairings. I recommend that people do such. But in general, it looks appealing to buy Ford at 14 for some people versus GM at 58,” he said. “GM has been a much better technical stock over the years, and to me it looks much more appealing than Ford at these levels.”
Two macroeconomic drivers could boost numerous auto stocks in the near future, said Steve Chiavarone, a portfolio manager, equity strategist and vice president at Federated Hermes.
“We think there’s two key themes that are kind of having a nexus here. One is the EV theme itself, which we think is a long-term growth driver” from a fundamental and sustainable perspective, Chiavarone said in the same “Trading Nation” interview.
“Secondly, these are value cyclical stocks. Any moderation or weakness we’ve seen in auto sales over the last couple of months is really about … lack of supply, certainly not lack of demand,” he said. “We think you’re going to see as those supply chain issues fix themselves.”
That near-term growth spurt, the ongoing EV story and the still-low valuations in the auto space make this an attractive trade, Chiavarone said.
“You’re talking about an 8.5 times multiple for these stocks, or at least kind of high single digits, which represents in our view a tremendous value,” he said.
