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Automotive Stocks Announce Cutbacks: Which Stocks Still Look Like Buys?

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Ford (F - Free Report) announced today that it will be cutting 12,000 jobs at the company’s operations across Europe by the end of fiscal 2020. The announcement comes as the continuation of the automaker’s global restructuring program. Ford is also planning on closing or selling off six out of its 24 European plants. The cutbacks are reaching as far as its facilities in Spain and Germany where they are expecting to drop shifts.

The car company’s global workforce of 199,000, with 53,000 of those workers stationed in Europe, will become notably smaller in size in the coming year. The company’s new cutback initiative comes as an attempt to reverse years of losses. A management shakeup two years ago ended with appointing Jim Hackett as the new CEO and several cost saving strategies have been implemented since his tenure began.

Company officials say the cost saving measure put into effect reflect the shift Ford is attempting to make from conventional gas-powered vehicles to electric and battery powered automobiles. Investors seem to be taking the company’s changes well as Ford is up over 33% on the year. Ford’s Mustang will be part of a joint venture with German automaker Volkswagen VWAGY. The two car companies are also in talks for further collaborations on autonomous and electric cars that could be announced in upcoming weeks.

The automotive industry is facing pressure as a whole from regulators around the world to make the switch to environment friendly cars. Ford is not the only automotive company that has had to announce cutbacks. General Motors GM announced last November their plans to shut down five of its facilities in North America, which would result in the loss of 14,000 jobs. Volkswagen also made an announcement in March about its initiative to eliminate 7,000 jobs on top of its previously projected cuts.

These automotive stocks have been playing the catch-up game as they attempt to recover from losses and appease regulations. Let’s take a more in depth look at these automotive stocks and see which ones might be able to emerge from the rubble.

Ford

Ford is currently listed as a Zacks Rank #2 (Buy) and is coming off a stellar quarter. The automaker was able to crush our consensus estimate of $0.26 by reporting EPS of $0.44, an EPS surprise of +69.23%. And, earnings grew over 46% compared to the previous quarter.

Our consensus estimates are calling for 13.79% year-over-year earnings growth with a 2.13% sales increase for the following quarter. On top of strong projections for the following quarter, the stock has a strong valuation lure as well. Ford is currently trading at 7X its forward earnings, with a PEG ratio of 0.99. The automotive giant also has a P/S ratio of 0.25, which further pushes the stock to trade at a discount level relative to its industry. 

General Motors

General Motors is currently sitting at a Zacks Rank #3 (Hold), and is another stock coming off a strong quarter. The company was able to surpass our consensus estimate by $0.32 to produce an EPS surprise of +29.36%. The stock has seen some growth this fiscal year, as it is up over 14% stemming from a 10% surge in the last 4 weeks.

Despite the strong recent performance from the stock, it has seen some decline as its EPS tumbled 1.4% and its revenue fell 9.17% compared to the previous quarter. The Zacks Consensus Estimate is projecting a year-over-year earnings plunge of 21.55% with a 3.28% decline in sales for the current quarter. GM has had a solid past 4 weeks and must come up with another positive earnings surprise if it wants to sustain its recent growth.

Volkswagen

Volkswagen is currently a Zacks Rank #3 (Hold) and has had more of a lackluster year compared to the prior two stocks; shares are only up a bit over 2%. The German automaker saw EPS growth of 6.45% compared to the previous quarter, but its sales fell by 2.58%. Despite some shaky growth, the stock has strong valuation that can attract investors, especially if the company can make progress towards collaborations with Ford on future models. The company boasts a P/E ratio of 5.69, with a PEG ratio of 1.32 and a P/S ratio of 0.31. The automotive giant’s earnings yield of 17.57% further separates the stock from its peers, while solidifying the stock as a sound investment within the industry.

Looking at this chart, Ford has been the stock that has been able to outperform the industry as well as the subsequent stocks since January.

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