Ford and GM Stock Are ‘Exceptionally Undervalued,’ Says Value-Investing Star

Specifically, Greenhaven bought 4.9 million GM shares to lift its stake to 20.3 million shares as of March 31. The investment firm also bought 5.6 million Ford shares in the first quarter; it hadn’t owned any at the end of 2022. Greenhaven’s Lear stake rose 700,000 shares to 1.7 million.

All three stocks tumbled in 2022. GM and Ford stock each dropped more than 40%, while Lear stock slid 32%, compared with a decline of 19% for the
S&P 500 index.
So far this year, GM, Ford, and Lear shares are up 2.8%, 6.0%, and 6.2%, while the index has added 6.9%. Wachenheim sees more gains for the shares for patient investors.

“[W]e are value investors with a time horizon of several years,” he wrote in an email in response to a request for comment on Greenhaven’s recent stock trades. “Ford and GM seem to be exceptionally undervalued based on their longer-term fundamentals.”

Wachenheim has a three-decade record of delivering an average annual return of 19% for Greenhaven portfolios, before fees.

“We pay relatively little attention to the companies’ expansion into [electric vehicles], but rather focus on the value of their pickup trucks, large SUVs, and vans, which seem to be attractive, high-margin businesses,” he wrote. “Based on the earnings of these businesses, we believe that GM’s earnings power (earnings in a normal year) should be close to $8.00 [per share] in a few years and Ford’s should be close to $2.50.

“Given the attractiveness of the pickup truck, large SUV, and van businesses, we believe that both companies are worth at least 10 times earnings. And GM could be worth substantially more than 10 times earnings if Cruise is successful. Furthermore, both companies have more cash than debt (which is important to us) and both seem to be well-managed.”

Cruise is GM’s self-driving-vehicles unit. Regarding the valuation on the shares, GM stock’s price/earnings ratio is less than six. Ford lost money in 2022, but its shares are trading at less than eight times expected 2023 earnings, according to S&P Capital IQ.

Lear stock stacks up just as well as shares in GM and Ford, says Wachenheim.

“While selling to the auto OEM’s ordinarily is not a good business, we believe that selling seats is a very good business—and Lear is good at it, and is gaining market share from
Adient
(ADNT) (and maybe from others also),” Wachenheim wrote.

Lear “has a strong balance sheet and seems to be very well managed—both of these are important to us. We like quality. Auto sales around the world continue to be depressed. We believe that, in a few years, the normal demand for new autos should be about 97 million versus 80 million-81 million last year,” he wrote.

“When auto sales approach normal, Lear’s margins should approach normal, which seems to be about 8%. With margins at 8%, two or so years from now, Lear should earn $22-$23 per share. We would value the shares at a minimum of 10 times earnings,” Wachenheim added. “Thus, at their recent price, they seem to be very attractive.”

That would put Lear stock at $220 to $230 each, about double the $131.70 it closed at Thursday.

Inside Scoop is a regular Barron’s feature covering stock transactions by corporate executives and board members—so-called insiders—as well as large shareholders, politicians, and other prominent figures. Due to their insider status, these investors are required to disclose stock trades with the Securities and Exchange Commission or other regulatory groups.

Write to Ed Lin at [email protected] and follow @BarronsEdLin.