Look past looming strike and buy Ford and General Motors stock, UBS says

By Steve Goldstein

UBS initiated coverage of 13 auto stocks, as the broker said investors should focus on growth opportunities and not a looming strike.

Joseph Spak led an initiation that has occurred as the looming United Auto Workers strike has pressured shares.

Ford Motor Co. (F), which UBS previously rated as sell, now has a buy rating; General Motors (GM), which was neutral, also is now a buy. Tesla (TSLA) was kept at neutral.

Most of the other companies weren't previously rated: Aptiv (APTV), Mobileye (MBLY) and Borgwarner (BWA) were rated buy; while American Axle (AXL), Visteon (VC), Adient (ADNT), Rivian (RIVN), Magna (MG.T), Dana (DAN) and Lear (LEA) all were rated neutral.

For the automakers, "contract details will matter, but some level of wage/cost inflation was to be expected," and for the suppliers, four weeks of a strike at each of the Detroit three automakers has been priced in.

For legacy OEMs, peak pricing and ICE/BEV transition concerns are well appreciated and UAW sell-off created more attractive risk/reward profile, the analyst said. Tesla is well-positioned for the long term, but the analyst is waiting for a better entry point.

An issue for the suppliers is their exposure to U.S. and European market, and limited exposure to China, the largest producer of vehicles.

One interesting finding is that UBS finds nearly $3,000 of average retail transaction pricing above trend which they say is unexplained. To the industry, that means $49.5 billion in annual sales.

"The trickier factor to figure out is when it will happen. Supply could remain tight for a while, which could be supportive of pricing (and a strike would help further). The financing environment should be a headwind, even if to date, it hasn't been," the report says.

-Steve Goldstein

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09-13-23 0754ET

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