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Tesla isn't the only auto stock exploding right now

Brian Sozzi
·Editor-at-Large
·3-min read

Tesla’s stock isn’t the only one in the auto space showing some electrified action to kick off 2021.

Somewhat under the proverbial radar, shares of General Motors and Ford are up 31% and 23%, respectively, year-to-date. Ford stock (F) was the top trending ticker on Yahoo Finance’s platform Thursday despite a lack of fundamental new news, underscoring the growing interest by investors to own the name.

So what gives with the surprising bullishness on two stocks that have been in reverse these past five years amid confusing restructuring plans and waning demand for sedans? At long last, it appears Wall Street is finally recognizing the actions each automaker has taken to cut costs and shift to electric vehicle production and how each may shape profits in coming years.

“We believe a robust product cycle, favorable pricing environment for U.S. trucks, improved warranty performance, and restructuring savings could result in better-than-expected 2021 guidance, and prompt investors to anticipate a more aggressive turnaround trajectory,” Deutsche Bank auto analyst Emmanuel Rosner said about Ford in a note this week to clients. Rosner put Ford’s stock — still trading at a paltry forward price-to-earnings multiple of 9.5 times and relatively attractive 1.3% dividend yield — on his conviction buy list.

Rosner’s “robust product cycle” shout out on Ford is a nod to some key models coming to market soon, including the electric Mustang Mach-E (2021), the first electric F-150 (2022) and Bronco (2021). The analyst is also keen on the potential for a revamped cost-cutting plan under new CEO Jim Farley and strong truck prices as the economy recovers from the pandemic.

Considering Ford’s seemingly cheap valuation given these factors, it’s no wonder the stock has shifted into high gear especially with all the optimism on Tesla floating around trading desks.

Indeed, the tune is similar at General Motors (GM) at the moment.

“We believe the company could initiate better than expected 2021 guidance in the $6.00-$7.00 range vs. consensus $5.92, boosted by strong full-size truck pricing/volumes/mix, ongoing structural cost savings, and non-repeat of $1.2 billion Takata recall charge, partially offset by higher commodity prices and roll-off of COVID austerity measures. Moreover, we believe additional updates from GM on timeline of its EV rollout, and on its strategy for Cruise could help unlock additional value,” Rosner said, adding GM to his buy list as well.

FILE - In this Jan. 16, 2019, file photo, Cruise AV, General Motor's autonomous electric Bolt EV is displayed in Detroit. A group of institutional investors is sinking $1.15 billion into GM Cruise LLC, the autonomous vehicle unit of General Motors. GM announced the investment from a group led by T. Rowe Price on Tuesday, May 7, and said it included money from GM, Honda and Japanese tech investment firm SoftBank. (AP Photo/Paul Sancya, File)
FILE - In this Jan. 16, 2019, file photo, Cruise AV, General Motor's autonomous electric Bolt EV is displayed in Detroit. A group of institutional investors is sinking $1.15 billion into GM Cruise LLC, the autonomous vehicle unit of General Motors. GM announced the investment from a group led by T. Rowe Price on Tuesday, May 7, and said it included money from GM, Honda and Japanese tech investment firm SoftBank. (AP Photo/Paul Sancya, File)

Despite GM shares getting a boost this week following Microsoft’s fresh $2 billion investment in the automaker’s autonomous tech business Cruise (valuing Cruise at $30 billion, or 38% of GM’s market cap; chatter of a spin-off is likely to increase), the stock still looks cheap relatively speaking. GM’s stock trades at a mere 8.3 times estimated forward earnings and offers a 1.4% dividend yield.

Clearly, there appears to be more meat behind the momentum in Ford and GM and former President Donald Trump leaving the White House and no longer able to attack each company via Twitter. Whether that momentum could be sustained beyond the looming earnings season, only time will tell.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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