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Legacy automobile manufacturers Ford (NYSE: F) and General Motors (NYSE: GM) have grossly underperformed the market in the last decade. For example, Ford stock has returned 36% in dividend-adjusted gains to investors since October 2002. Comparatively, GM stock has fallen by a marginal 0.9% in this period. The S&ampP 500 index, on the other hand, has gained close to 300% in the last ten years.

But both the automobile heavyweights are now looking to gain traction in the rapidly expanding electric vehicle market, which might add billions of dollars to the top line in the next few years. 

Let’s see which, between Ford and General Motors, should be on top of your buying list right now. 

Ford stock pays investors a dividend of 5.4%

In the last few trading sessions, Ford investors experienced an accelerated sell-off as the stock is down close to 20% since the start of September. Ford recently confirmed that inflation-related supplier costs would increase by $1 billion in Q3. 

However, it also allows investors to buy a billion-dollar dividend-paying stock at a discount. The company continues to expand its commercial business with the launch of updated super-duty trucks for enterprises. Ford already commands a market share of 60% in this space. 

Additionally, it also manufactures the best-selling light-duty truck in North America called the F-150. The battery-powered F-150 truck was launched in May, and Ford has sold close to 2.300 units in the first six months of 2022. 

In July, Ford’s EV sales rose close to 200% to 7,700 units, and it sold over 30,600 vehicles in the first seven months of 2022. In Ford’s Q2 earnings call, company CEO Jim Farley explained, “We believe that these great new products will help us to grab an outsized share of the rapidly growing EV market, combined with our healthy and vibrant shares of our ICE [internal combustion engine] and growing hybrid markets.”

By December 2023, Ford expects to ramp up EV production capacity to 60,000 units per month, suggesting its battery-powered vehicle sales might top 750,000 units in 2024. Ford sold close to four million vehicles in 2021, and EVs might account for 33% of total auto shipments by 2026. 

Ford increased its dividend by 50% to $0.15 per share, translating to an annual yield of 5.4%. The company increased revenue to $40.2 billion in Q2, a rise of $13.4 billion compared to its prior-year period. It now forecasts adjusted EBITDA to surge between 15% and 25% to between $11.5 billion and $12.5 billion in 2022. Valued at less than 5x forward EBITDA, Ford stock is undervalued and trading at an attractive multiple. 

Analysts expect shares to rise by 30% in the next year. After accounting for its dividend yield, total returns be closer to 36%. 

Is General Motors stock a buy?

While Ford has already gained traction in the EV space, General Motors’ production numbers are quite low. But, it is expected to expand production of EVs such as Chevy Bolt, Cadillac Lyriq, and GMC Hummer EV. In fact, the company claimed that 100% of its cars manufactured will be electric by 2035. 

Unlike most other EV stocks, General Motors is profitable and is trading at eight times forward earnings. Analysts expect adjusted earnings to rise by 16% annually in the next five years, indicating GM stock is also undervalued and trades at a discount. Currently, it offers investors an upside potential of 50%, given consensus price target estimates. 

The key takeaway

Shares of both Ford and GM are cheap. But the growing market share of Ford and tasty dividend yield make it a better bet for investors right now.

Ford Motor (NYSE:F)
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From Feb 2023 to Mar 2023

Ford Motor (NYSE:F)
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From Mar 2022 to Mar 2023