Stocks pairs trading: GM vs F

BATS:GM   General Motors Company
I'm diving into a pairs trading strategy featuring two titans in the automotive industry: General Motors (GM) and Ford (F). Both companies are household names with a rich history in the automotive sector, but their financial metrics reveal key differences that present a trading opportunity. I'm contemplating going long on General Motors and short on Ford, aiming to capitalize on their distinct financial landscapes.

Why Go Long on General Motors (GM):

Valuation: GM has a P/E ratio of 4.34, significantly lower than Ford's P/E ratio of 11.84. This makes GM comparatively less expensive and potentially undervalued.

Dividend Yield: GM offers a dividend yield of 1.43%, which, while lower than Ford's 4.60%, comes with stronger fundamentals such as higher ROA and ROE.

Profitability: GM's ROA and ROE stand at 3.88% and 15.14% respectively, much higher than Ford's ROA of 1.62% and ROE of 9.42%.

Performance Metrics: Despite negative performance across multiple timeframes, GM's stronger fundamentals could position it well for a rebound in the longer term.

Why Short Ford (F):

Valuation: Ford's higher P/E ratio of 11.84 suggests that it might be more expensive relative to its earnings than GM, potentially making it overvalued.

Short Interest: Ford has a higher short float of 3.67%, implying it could be more susceptible to negative market sentiment, thereby making it a candidate for a short position.

Profitability: Ford's lower ROA and ROE figures compared to GM indicate less efficiency and profitability, supporting the decision to go short on the stock.

Performance Metrics: Despite Ford's positive performance YTD, its weaker financial fundamentals compared to GM make it a riskier long-term investment.


Long on 1 GM
Short on 3 F

The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.