Why GM and Ford Stocks Are Still a Buy Despite Tariff Concerns
As we navigate the tumultuous waters of the automotive market, the recent tariffs announced by President Trump are causing quite the stir. General Motors (GM) has taken a significant hit on the stock market, leading the S&P 500 decliners, with a drop of 7.4% following the news. Meanwhile, Ford (F) shares also took a tumble, slipping 3.9%. However, don’t let the sharp downturn fool you—these stocks still present a buying opportunity according to analysts at J.P. Morgan.
Tariff Woes but Optimistic Insights
Analyst Ryan Brinkman from J.P. Morgan acknowledges that the auto industry is facing billions of costs due to tariffs, but his outlook on GM and Ford remains bullish. In the realm of trading, it is essential to differentiate between short-term market reactions and long-term forecasts. Brinkman believes that despite GM being the most affected by the new tariffs, it’s still a solid buy due to several factors at play.
The Adjusted Tariff Burden
Brinkman revised his estimates regarding how much the tariffs will cost GM and Ford. For GM, the projected tariff cost is now about $13 billion—down from $14 billion—while Ford’s estimated hits are now at about $4.5 billion instead of the previously expected $6 billion. These adjusted estimates provide a clearer understanding of the financial impact and present better buying signals for traders interested in these stocks.
The Competitive Edge of U.S.-Based Carmakers
So why should traders consider GM and Ford as buys? Brinkman’s analysis indicates that these U.S.-based carmakers have a competitive advantage going forward due to their ability to assemble most of their vehicles domestically. Out of 17 GM models, 12 are assembled in the U.S. Even Ford has a significant portion of its models—14 out of 19—assembled in the United States. Importantly, domestic automakers are now positioned to pass on some of these costs to consumers without losing significant market share.
The Price War Advantage
Brinkman suggests that the tariffs will actually create greater pricing power for domestic automakers. This is crucial as U.S. manufacturers may be able to increase their prices to offset tariff costs without the risk of losing customers to foreign rivals. This presents a compelling opportunity for traders as it establishes a potential foundation for sustainable revenue growth.
Investing in Future Returns
Investors should also take note of GM’s plans to boost shareholder returns. The company aims to raise its dividend and increase share repurchases—actions that typically inspire confidence in stock performance. Moreover, with strong sales attributed to GM’s recently refreshed line of full-size trucks and SUVs, this creates a win-win scenario for those considering an entry point into these stocks.
Ford’s Strategic Moves
Ford isn’t standing still either. The automaker is refreshing its vehicle lineup and making strategic decisions to reduce its international operations—an approach that could enhance profitability and streamline operations. Brinkman’s optimistic outlook on Ford adds another layer of potential for traders as the market absorbs these shifts.
Valuations and Market Position
Both GM and Ford stocks are currently trading at or slightly below historical averages, making them relatively attractive for long-term investors. For traders operating within the momentum strategy, this valuation presents an actionable entry point, especially as market conditions stabilize post-tariff announcements.
Conclusion: Time to Buy?
While tariffs pose a short-term headwind for GM and Ford, the bullish sentiment from analysts, coupled with strategic operational adjustments, sets the stage for potential rebounds in their stock prices. The current market situation creates a compelling narrative for savvy traders willing to capitalize on long-term trends rather than react to fleeting headline news. Consider adding GM and Ford to your watchlist as potential buys, keeping an eye on upcoming earnings reports and broader market sentiment.