Question: Is Wall Street:
(a) A teacher handing out report cards?
(b) A Las Vegas sports book?
Executives at Ford Motor Co. and General Motors at times seem to think the answer is (a). They are chagrined that their genuinely impressive financial results have not won them more love on the Street.
Instead, share prices are sluggish. Ford has been trading in the low $13 range, roughly in the middle of its 52-week average. GM has been around $30, again mid-range over the past year.
So you had GM CEO Mary Barra complaining to Bloomberg TV this week that GM’s stock price is undervalued. Dan Amman, GM’s president, has said that eventually the market will recognize the company’s progress in building profits.
Likewise, Ford CEO Mark Fields earlier this year countered questions about share values by saying, “We’re going to focus on continuing to drive the business forward. At some point we’re going to get recognized.”
Well, maybe.
Looking from one perspective, Ford and GM deserve to see stock prices soar, based on their sky-high profits. GM posted $10.8 billion in pretax operating income for 2015. Coincidentally, Ford also raked in $10.8 billion pretax.
That used to be “Toyota money” that Detroit automakers could only dream about. (Toyota now makes a ton more that that, but that’s a different issue.)
But, to get back to my initial question, the Detroit duo would only get “recognized” if Wall Street functioned like a schoolteacher, handing out “A” grades for operational excellence.
For better or worse, Wall Street is more like a Vegas oddsmaker setting the spread for sports bettors. Wall Street is trying to forecast how much a stock will go up.
And for reasons ranging from the sales cycle (possibly peaking) to potential business model disruption (Google, Apple), the street is skeptical about the GM and Ford upside -- which, I suppose, eventually becomes a self-fulfilling prophecy.
How much more exciting to prospect for the next Tesla! Hard to recall, but Tesla traded below $25 in the first month after it went public on June 29, 2010 (and dipped below $15). Tesla closed down 2.6 percent today at $229.34, so you can calculate for yourselves the get-rich “if only” scenario.
That’s why I think GM and Ford might as well get used to their stock values. Despite vastly improved operations, GM and Ford look like buy-and-hold stocks, great if you want to collect dividends over the years.
But that’s just not sexy when you have Silicon Valley stocks blowing through the roof.
