Shares of General Motors and Ford Motor could rise at least 25 percent in the next year, with U.S. auto sales likely to come in stronger than many investors fear, according to a report on Sunday in Barron's financial newspaper.
Both companies' stocks look cheap, Barron's said. Ford and General Motors trade at 6.6 times and 5.6 times expected 2016 earnings, respectively. The broader S&P 500 has a forward price-to-earnings ratio of 17.
Shares of both companies have been under pressure as a result of investor fear of a downturn in the U.S. auto market as well as economic weakness in China. But investors are forgetting several positives, Barron's said. For one thing, the automakers are much leaner than in previous years, which could help profitability.
Also, while U.S sales could slip from the first quarter's pace of 17 million-plus units a year, they are likely to plateau at 16.5 million to 17 million vehicles annually, the publication said. Both GM and Ford have said they would still break even if annual sales fell to about 11 million.
Healthcare costs for retired unionized workers are no longer an obligation, Barron's added. The costs have been shifted to a trust fund run by the United Auto Workers that the automakers paid billions to create.
GM shares closed at $30.56 on Friday, and Ford shares at $12.94.