Watch Out, as Automotive Sales Fall Short in December

When Tesla (NASDAQ: TSLA) soared in value in 2017, soaring above the market cap of that of Ford (NYSE: F) and General Motors (NYSE: GM), the markets anticipated something in advance. Year-over-year sales in December for automobiles likely fell by around 7%.

Kelly Blue Book numbers estimate new vehicle sales will fall to 1.57 million. The SAAR (seasonally adjusted annual rate) of 17.6 million will be down from 18.1 million from December 2016. Last month’s sales face a tough comparable.

In 2016 car manufacturers celebrated record sales that followed seven consecutive annual increases. For this year, Kelly Blue Book’s parent company forecasts new car sales will top 15.6 million units.

Markets already expected demand slowing. The market is saturated with new car owners, so a moment of pause in sales will put pressure on GM and Ford stock this year. But for value investors, the sector is inexpensive.

GM’s 8.9x P/E and 3.71 percent dividend yield will compensate investors for the growth risks ahead. Ford’s stock trades at an 11.3x P/E and pays a dividend of 4.8 percent. As Tesla continues to get an irrationally high valuation, collecting a dividend and waiting for vehicle demand to recover is a passive strategy that may pay off.

Disclosure: Author owns shares of Ford.