General

Best car stocks to buy in May

Best car stocks to buy in May

Key insights

  • Tesla will be an interesting rebound game in case the coronavirus situation in China stabilizes.
  • Ford trades at only 6 forward P/E, which is attractive to value-oriented traders.
  • The general market is trying to recover, which could provide additional support for auto stocks.

The S&P 500 has recently moved from its annual lows, but many stocks remain under material pressure. Auto stocks are no exception, as traders fear higher costs and a possible slowdown in the global economy would hurt automakers’ profits. That said, some auto stocks are trading at attractive valuation levels that haven’t been seen in quite some time.

Tesla

Tesla stock recently came under significant pressure due to lockdowns in China. Musk’s desire to buy Twitter has also hurt investor sentiment, although recent news indicated the fate of the deal remained uncertain.

Meanwhile, analyst estimates have risen in recent months. Currently, Tesla is expected to report earnings of $12.32 per share in 2022 and earnings of $15.8 per share in 2023, so the stock is trading at 47 forward P/E.

Valuation levels like these aren’t cheap for an “ordinary” stock, but Tesla is no ordinary company. At the moment, it looks like demand for the stock could pick up in the coming weeks as China’s coronavirus situation stabilizes after the lockdowns.

Ford

Ford stock is extremely cheap compared to Tesla. The company is expected to report earnings of $2.18 per share next year, so the shares are trading at just 6 forward P/E.

It should be noted, however, that stocks of old automakers have traded at a huge discount against Tesla for years, so the relatively low price of Ford stock cannot serve as the main catalyst for the bulls.

However, Ford is also absolutely cheap. It’s not easy to see a world-class company valued today at just six times its future profits. Analysts’ estimates have fallen in recent months, partly explaining traders’ skepticism, but current levels should still attract value-oriented investors.

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