Daily Archive: September 2, 2017

Sep
02

Forget Tesla, buy shares in bargain-priced Ford and General Motors instead

Forget Tesla, buy shares in bargain-priced Ford and General Motors insteadFear of missing out makes “disruptive” growth stocks such as Amazon and Tesla hard to ignore, but investors risk overpaying for undeliverable hopes – and simultaneously missing out on overlooked bargains elsewhere. Car manufacturers are a case in point. Investors are quick to discount the established firms because of the threat of litigation over emissions, fears about an impending “death of petrol”, exposure to consumer credit risks and their perceived inability to fight back against the likes of Tesla. But shares in many of the traditional car makers are cheaply valued by the stock market – something that cannot be said of Tesla. Many of the incumbents trade at price to earnings ratios in the middle single digits and offer attractive dividend yields. Tesla, by contrast, has never made an annual profit yet has a market value of £45bn. General Motors is valued at £39bn, has a p/e ratio of 6 and a yield of 4.2pc, while Ford has a p/e of 8, a market value of £33bn and a yield of 5.5pc; for BMW the figures are 7, 4.5pc and £47bn. Listen now: It's Your Money Podcast Ford sold more than six million cars last year and made a £3.6bn profit, while Tesla shipped fewer than 100,000 and made a £520m loss. Investors are buying Tesla because of high hopes for what it can do in the future with electric cars, autonomous driving, battery storage and more. Tom Slater of Baillie Gifford, the fund manager, said he had invested in the firm because of its ability to develop a high-end luxury car brand so quickly, willingness to take risk and investment in long-term projects. But does the gulf in valuation make the old firms a bargain? Jacob de Tusch-Lec, manager of the £3.7bn Artemis Global Income fund, said: “Nobody will deny the negatives [about the incumbents], but if there is no recession around the corner you can pick these stocks up at bargain prices right now.” He said it was “not yet clear” that Tesla was going to out-compete the established car giants. He added that the market was pricing in both a very quick transition to electric and autonomous vehicles and a belief that traditional car makers weren’t going to fight back. “When the major car makers want to compete, they can give Tesla a run for their money, but for now they are a bit on the slow side,” he said. “It’s not like Tesla is going to make electric cars and car makers that have existed for 100 years will just roll over. They have built electric technology, they can team up with other firms, and they have distribution networks.” Sign up to Telegraph Investor Many car makers have already begun to reinvent themselves. Nissan, Renault and Chevrolet are some of the major companies to have released fully electric cars so far, while BMW is targeting sales of 100,000 electric vehicles this year. One concern that hangs over the automotive sector is the risk posed by potentially irresponsible lending to consumers. The Bank of England has voiced concern that consumers have taken on more car debt than they can manage. But Mr de Tusch-Lec said: “There has been a lot of hype, calling the market subprime, but in the crisis 10 years ago the auto market held up OK. This is factored into valuations – car makers wouldn’t be so cheap otherwise.” He added that, while “there aren’t many big differences” between car makers, exposure to consumer credit is one area where they do vary. “Some car makers are banks that happen to produce cars – they make money on finance and break even on vehicles,” he said. History of Tesla His preference is General Motors, which has largely spun out its financing arm, “unlike some of the German firms”. Half of all BMW vehicles, for instance, were leased or sold on credit by its own financial services division in 2015, according to Bloomberg. Mr de Tusch-Lec said he also liked GM’s exposure to the US pickup truck market, which is unlikely to be overturned by electric and autonomous alternatives any time soon, and its presence in China, where car sales are “stronger than in the rest of the world”. “The old firms are under pressure,” he added. “There is no doubt cars will be self-driving and electric – but the discussion is whether that is going to happen tomorrow or not. In my mind, some part of GM is still very valuable.” Chris Beauchamp, chief market analyst at trading platform IG, said current valuations gave investors a “good margin of safety” to compensate for the risks faced by the industry. He suggested buying exposure to both Tesla and an established car maker as “one way to play it”. “It’s tough to compare them, as it’s a boring car company versus a story,” he said. “Tesla offers the potential for major growth, but you’re not just buying an electric car company. It’s the ‘gigafactory’, the ‘hyperloop’ and all the other ideas too – you’re taking on a lot of risk if any of those ideas fail.” Follow us for more investing ideas: @TelegraphInvest  For investment tips and ideas five days a week, read Questor


Sep
02

North Korea Nuclear Test Leaves U.S. with Limited Options

North Korea Nuclear Test Leaves U.S. with Limited OptionsNBC's Ron Allen reports on the latest from Seoul, South Korea. With North Korea's advanced thermonuclear tests, the tensions between North Korea and U.S. allies only grow stronger.


Sep
02

Lessons from the financial crisis

Fund industry veterans provide their insights 10 years after the global credit crunch

Sep
02

Venezuela bars opposition activist from traveling to Europe

Venezuela bars opposition activist from traveling to EuropeCARACAS, Venezuela (AP) — A prominent anti-government activist was barred from leaving Venezuela on Saturday for planned meetings with European leaders, dealing a setback to opposition attempts to rally international pressure on President Nicolas Maduro.


Sep
02

Trump Wants To Put A Former Coal Executive In Charge Of Mine Safety

Trump Wants To Put A Former Coal Executive In Charge Of Mine SafetyPresident Donald Trump intends to entrust the lives of the nation’s miners to a former coal executive whose company battled the agency he would lead.


Older posts «