General Motors Corporation (GM)

This is a cyclical market, but he is seeing tremendous demand, particularly for pickup trucks and SUVs. Thinks the stock is worth $50. Based on its fundamentals this looks cheap. Dividend yield of 4.1%.

This has a great looking chart. There is money flowing in. He owns nothing in this area now, but has no negatives on it. The companies are breaking out and telling you that they want to go higher.

The one that he liked and bought was Fiat Chrysler (FCAU-N). The industry is very interesting and very cheap.

We are very late in the auto cycle, which is not to say that there won’t be an elongation of production at a high level. This is a major player, and there are some areas that are very mature, like North America, and other areas that present an opportunity, like Europe. All in all, he would give a Pass on this company. It is not likely to be a very big grower.

Ford (F-N) came out with results, and earnings are falling this year and earnings forecasts are falling next year. They decided it is because of increasing price competition, however, if you go to the General Motors press release, their results are strong and they are citing increased volume on stronger pricing. This company is able to hold its pricing, and they are at the lowest levels of promotion. Earnings estimates are up this year and are steady for next year. Dividend yield of about 5%.

A better company today than it was 15 years ago, when they had all kinds of debt, etc. Donald Trump said he would discontinue NAFTA. If that happens, auto prices would shoot up, demand goes down, which would be very negative for the sector. Assuming he doesn’t do that, there is a big stimulus package going on that is bullish for wages and bullish for autos. The other factor is ride sharing. This company said they don’t expect ride sharing to have a big impact on auto sales, but of course, the verdict is still out. All these stocks look cheap today because PEs are so low. That is often a warning sign for investors. If this economy slows down, and Europe doesn’t pull itself back into growth pretty soon, the auto sector could be in for weaker earnings, and therefore the PE of 6 today might be a PE of 15 tomorrow.

The time to Buy auto companies is when the PE is sky-high and there are no earnings. The time to Sell is when they actually have the earnings and the PE shrinks down. The market is indicating that it has been a great ride for the auto cycle, but it looks like production has peaked for now, which means earnings will probably peak as well. It is not necessarily a great time to be buying an auto stock, but that time will come again when sales bottom.

(A Top Pick Sept 24/15. Up 12.34%.) A stock that a lot of people love to hate, but for the last 5 years, all they have been doing is making money. People keep saying the auto boom is tapped out, but he doesn’t think so. This company and Ford (F-N) are selling a tremendous number of trucks. It pays a nice dividend of 4.8%. It has a very low P/E multiple, and it free cash flows like crazy. They may have better technology then Tesla (TSLA-Q) for electric cars, with the capability of building and selling a million each year.

He owns Ford (F-N). They all look really cheap, but the problem is we are not getting any money flows into the sector. We are in a transition in the sector, such as driverless cars and new technology, and investors don’t quite know what to do with it all.

There is a disbelief in the market about how long the market is going to continue. He prefers F-N over GM-N but now is a good entry point for both. Uber and driverless cars could have an impact on auto demand.

Too risky? Came out of the financial crisis and have restructured into far better shape. The trouble with cyclical companies is that they end up paying out too much in dividends, and then, if the cycle turns nasty, they have to cut them. He doesn’t see anything imminent in terms of dividend cuts. It is probably okay, but keep in mind this is a cyclical company.

(Market Call Minute) Auto production has peaked so he is not interested.

Basically auto companies haven’t really done anything from a price standpoint, because people think we are at the end of the cycle. PE is quite low which people generally like. However, different sectors and industries react differently to different metrics. A cyclical with a low PE generally is a negative, because it means it is topped out. You want to buy cyclicals when they have high PE ratios, meaning they are about to come out of their negative period when they are not earning any money. He is not a big fan of autos at this point.

Car company businesses are doing fantastic, but none of the stocks are doing that well. This is really a situation of the time of the cycle. We are back up to 17.5-18 million annualized units in the US. The average vehicle age is not that young yet. A great company and is earning lots of money, but the concerns with all of these is that we are getting to a point in the cycle that if the Fed starts to raise rates, there won’t be that much growth going forward. Feels the parts companies are better buys.

Another example where we haven’t seen that big of a fall off in terms of operating metrics or auto sales in the US or globally. However, at the same time there is a fear that something bad is going to happen. A lot of these have been under pressure because people are feeling we are at the end of the cycle. There is a lot of volatility in these types of names, and there could be a better entry point.