2 Stalling Auto Stocks Dinged by Downgrades

UBS downgraded Ford Motor and General Motors

Wall Street analyst UBS weighed in on the auto industry today, issuing bear notes to Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM). In its note, the brokerage firm said the sector’s 2023 outlook is “deteriorating fast so that demand destruction seems inevitable at a time when supply is improving,” indicating a rapidly approaching vehicle oversupply issue after three years of extraordinary pricing power.

UBS downgraded Ford Motor stock to “sell” from “neutral” and lowered its price target to $10 from $13, noting the company runs the highest risk of “testing break-even points.” In addition, RBC chimed in with a price-target cut to $13 from $15.

Ahead of the open, shares of Ford Motor are 5.7% lower to trade at $11.51. The stock’s mid-August rally from two-year lows was stopped short by its 200-day moving average, while a floor seems to be forming at the $11 level. Coming into today, F was down 41.3% year-to-date.

General Motors stock was downgraded to “neutral” from “buy,” with a price-target cut to $38 from $56. UBS predicted a gloomy 2023 outlook for GM, saying, “We expect [earnings per share] to more than halve next year.”

GM was down 4.5% at last glance, trading at $32.11 before Wall Street’s open. General Motors stock sits a far cry from its Jan. 5 record high of $67.21, while its 180-day moving average contained a breakout back in September. Coming into today, GM was 42.7% lower in 2022.

The options pits echo this pessimism, with both stocks seeing an increased appetite for puts. This is per F’s and GM’s 10-day put/call volume ratios at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stand in the 87th and 85th percentiles, respectively, of the past 12 months. In other words, calls have been picked up more than puts in the last two weeks, but the preference for bearish bets has rarely been more popular over the past year.