DETROIT -- Looking to buy shares in a blue-chip automaker? A slew of upcoming product launches makes General Motors Co. stock a better buy than Ford.
That's the conclusion of Credit Suisse analyst Christopher Ceraso, who was among several analysts to begin their coverage of GM shares on Tuesday with the equivalent of a “buy” rating.
Ceraso said in a research report that GM “trades at a deep discount to Ford,” but the “valuation gap should narrow substantially” over the next few years thanks to GM's aggressive product-development cycle.
Pitting GM and Ford stock head-to-head has become a favorite musing of Wall Street analysts since GM's initial public offering last month -- conducted just 16 months after the company completed its U.S. government-sponsored bankruptcy reorganization. The analysts have differed in their conclusions.
Last week, UBS analyst Colin Langan declared that Ford is the better stock because its upcoming vehicle lineup is superior: “We expect Ford's better product launch schedule will drive share gains at GM's expense.”
‘Refresh rate' edge
Several analysts began their coverage of GM today, which ended a 40-day period that prevented coverage from companies that participated in GM's November public stock offering.
Ceraso analyzed the automakers' “refresh rates,” which he defines as the percentage of U.S. sales that come from either redesigned vehicles or “heavy facelifts.”
Ford is winning that battle today. This year, 26 percent of Ford's U.S. sales came from redesigned or refreshed vehicles, compared with just 14 percent for GM, Ceraso said.
Ford will keep the edge next year, led by the launch of the new Ford Focus. In 2011, Ford's refresh rate will be 19 percent, compared with 12 percent for GM, the analyst said.
But the tables start turning in 2012, when GM is set to launch a re-engineered and restyled Chevrolet Malibu, the new Chevy Spark minicar and two new Cadillac models (the XTS large sedan and the ATS small sedan). That year, GM's refresh rate should hit 30 percent, while Ford stays at 19 percent.
In 2013, redesigned Chevrolet Silverado and GMC Sierra trucks, as well as a redesigned Chevy Impala and other launches, should give GM a 26 percent refresh rate, compared with a projected 15 percent for Ford.
“GM's product cycle, while relatively anemic in 2011, will accelerate sharply in 2012 and 2013, about the same time that Ford's product cycle shifts into lower gear,” Ceraso wrote.
GM spokesmen weren't available for comment.
Ford spokesman John Stoll said the company generally doesn't comment on its stock price or on comparisons between its products and those of its competitors.
GM stock rises
GM's shares rose 72 cents, or 2.1 percent, to close the day at $35.32 on the New York Stock Exchange.
The U.S. government recouped $23.1 billion of its GM investment in last month's IPO. The government could break even on the cost of its 2009 GM bailout if it sells the remaining 500 million common shares at an average price of $53.
That price isn't out of line with what analysts now are predicting.
“GM is designed to be very profitable in a bad market,” Morgan Stanley analyst Adam Jonas wrote in a research report today, assigning GM shares an “overweight” rating and a target price of $50. GM's stock offers only “slightly more upside than Ford” and is “a higher risk,” he said.
He and other analysts also cited GM's much-improved balance sheet and a newfound pricing discipline that is boosting its earnings power.
In North America, GM “is already demonstrating strong earnings power due to disciplined pricing with further upside potential as markets recover,” Barclays Capital analyst Brian Johnson wrote today.
Risks remain. GM's product cycle is relatively muted until well into 2012, which leaves it more vulnerable to sagging U.S. volume and will make it tougher to regain lost market share, Ceraso said.
Also, GM's lack of a sizable captive lender relative to its competitors could hamper its ability to finance customers, Jonas said. And its European business is still a money-losing drag. Jonas said it might take more than a year before GM Europe reaches a break-even point.
And GM and Ford will have to contend with reinvigorated product lineups from stalwarts Toyota and Honda. Both Japanese automakers will have vehicle refresh rates equal to or better than GM in 2012, and higher than Ford's rate, Ceraso said.