Ford vs Toyota Stock: U.S. car sales have been disappointing in comparison to years past. In H1 2019, the automotive industry was down 2.4 percent, and is projected to finish the year with 16.9 million sales – the first time since 2014 that this figure has been below 17 million.
Car sales in the U.S. are reflecting global trends as well. Europe, Russia, India, China, and Japan all saw declines in their automobile markets, while only Brazil saw an increase of 11 percent.
Despite these underwhelming results, it’s perfectly possible for individual car manufacturers to thrive in this environment. As of June 2019, for example, Subaru has seen 91 straight months of year-over-year growth, including a 5.2 percent increase in H1 2019.
Ford [NYSE: F] and Toyota [NYSE: TM] are two of the giants of automobile manufacturing in the U.S., but both of them saw their sales slump at the end of 2018. Is 2019 looking any better for Ford and Toyota stock?
Pros and Cons of Investing in Car Manufacturers
The automobile industry is prime for disruption in the next 5 to 10 years. Electric and hybrid cars such as Tesla and the Nissan Leaf offer an alternative for more eco-friendly consumers to reduce their dependence on fossil fuels. Further away, but expected to be even more impactful, are self-driving cars, which have elicited a great deal of interest but have yet to hit the mainstream.
Other economic developments also promise to shake up the car manufacturing industry. In 2018, for example, the Trump administration imposed tariffs on steel and aluminum from most countries (except for Canada, Mexico, Argentina, Australia, Brazil, and South Korea). Steel is an integral component of automobile manufacturing, and the tariffs are expected to have a negative impact on profitability and production numbers across the sector.
These tariffs are just one part of the increasing global uncertainty about an economic slowdown in China and the U.S. In mid-August, the Dow Jones Industrial Average plunged by 800 points amid concerns of a recession, bringing down stocks of major car manufacturers such as General Motors and Chrysler with it.
Common sense would suggest that investing in car manufacturers is a risky proposition right now, especially given how hard many of them were impacted during the last financial crisis in 2008. The fate of the industry tends to rise and fall with the state of the overall economy.
Is Ford Stock a Buy?
Ford stock had an especially poor 2018, tumbling by 31 percent. Since the start of the year, however, share prices have remained fairly stable.
The good news is that Ford [NYSE: F] is making solid progress on its turnaround plan, although the company isn’t yet in the clear. If all goes well, now may be a good time for investors to scoop up Ford stock while it’s still relatively cheap.
Shares of Ford [NYSE: F] dropped by 7 percent in late July after the company announced its Q2 2019 earnings, which fell short of investor expectations.
The adjusted operating profit remained flat at $1.7 billion, while earnings per share were $0.28, beneath predictions of $0.31. However, this shortfall is due to Ford writing down its investment in Pivotal Software by $181 million; without this one-time event, adjusted EPS would have been $0.32.
Ford’s two strongest markets are currently North America and China. The company is also hoping to cut costs in the European market by terminating 12,000 jobs and shedding 6 of its 24 factories by the end of next year.
New models of the Ranger midsize truck, the Bronco off-road SUV, and the Escape and Explorer crossover SUVs are also expected to improve profits in North America.
Should You Invest in Toyota Stock?
Like Ford [NYSE: F], Toyota stock may represent a value buy for savvy investors after a choppy 2018. Toyota’s RAV4 crossover SUV was the best-selling car in the U.S. last year, and the company’s Camry, Corolla, and Highlander models also placed in the top 10.
Toyota [NYSE: TM] already has a foothold in the hybrid vehicle market with its Prius model, but the car is in a six-year slump, with sales dropping every year. However, the company has other hybrids available for models such as the Corolla, RAV4, and Camry. General consumer demand for hybrids is expected to increase in the medium term, up to 15 percent in 2025 from just 3 percent in 2018.
Shares of Toyota [NYSE: TM] have consistently paid dividends, and the stock is currently yielding roughly 3 percent, or about 30 percent of the company’s earnings. This makes it a smart buy for investors who are focused on short-term income.
The company plans to grow conservatively over the next few years by reducing new models’ time to market and cutting back on business expenses.
Ford vs Toyota Stock: The Bottom Line
The automobile industry is a cyclical one, tending to reflect broader trends in the economy at large. With fears of a recession on the horizon, now might be a good opportunity for investors to wait and get Toyota [NYSE: TM] or Ford stock at an even greater discount.
In a head-to-head comparison, however, we tend to favor Toyota [NYSE: TM] for now. When contrasted with Ford, Toyota has better profitability, better dividends for investors, and a suite of highly in-demand vehicles.