A funny thing happened on the way to the end of the first quarter on Friday, March 30.

After leading the stock market for most of the quarter, cyclical stocks started to lag the Standard & Poor’s 500 Stock Index.

Is this a sign of what we can expect in the second quarter as worries about economic growth take the steam out of profits linked to the economic cycle? I’d say, Yes. I think we’re seeing the first signs that the pendulum, which swung to optimism and drove this rally, is swinging in the other direction.

Let’s start with some numbers. Read more

I think General Motors (GM)—and GM shareholders—will get reintroduced to reality with the company’s Thursday February 16 earnings report.

Investors have been surprised to find that just two years after emerging from bankruptcy General Motors has returned to its traditional position as the world’s largest carmaker. In 2011 General Motors sold 9 million cars to take back the title of the title that it lost to Toyota in 2008.

The good news has helped propel GM shares to a 25.8% gain for 2012 through February 10. (That compares to a 6.98% gain for the Standard & Poor’s 500 in 2012 through February 10.)

But now the shiny new car that GM built—with financing from U.S. taxpayers courtesy of the Obama administration—has got to perform. The showroom gloss is gone and investors will want to know how long it will take the new GM to go from zero to 60—and if the engine will blow out halfway down the track.

Mere survival is no longer good enough—especially now that investors have bid up the value of that survival by 26%.

I think we’ll see what this little deuce coup has got not in the company’s report on fourth quarter 2011 earnings, but in GM’s guidance for 2012. Read more

U.S. automakers are back, baby.

And so are their stocks.

December vehicle sales in the U.S. climbed to a 12.5 million unit annual rate. That’s without help from “Cash for clunkers” or any other government subsidy program. And with relatively restrained incentives from the automakers themselves.

For the month General Motors saw sales climb by 8.5% from December 2009 and Ford saw sales grow by 6.8%. General Motors retained a leading 19.6% share of the U.S. market and Ford jumped over Toyota to take the No. 2 slot with a 16.6% share. For the full year General Motors saw a 6.7% climb in sales and Ford’s sales grew by 15.2%.

No wonder the price of Ford soared in 2010—up 67.9%. General Motors only emerged from bankruptcy this year. The company’s November 10 IPO (initial public offering) closed at $34.19 on its first day of trading. From that close to the close on January 6, the shares were up 13.8%

But looking ahead, if in 2011 you really want to leverage the recovery in auto sales, shares of General Motors and Ford aren’t the best stocks to own. To get the most mileage from the auto industry, to really turbo charge your returns, to … well, you get the idea, look to the shares of auto industry suppliers. Read more

Auto sales support view U.S. economy is recovering

Look, Ma, no smoke and mirrors. Or not much anyway.

That’s the best thing about the 11% growth in sales reported by automakers in the United States for December 2010 from December 2009.  The seasonally adjusted annualized sales rate of 12.5 million didn’t depend on a government subsidy such as “Cash for clunkers” or even on much help from automakers’ own incentive programs.

Car sales for the month actually reflect real consumer demand. Imagine that. Read more

Update Johnson Controls (JCI)

General Motors’ stock offering turned out to be so popular that it was massively oversubscribed and the company increased the share price for its initial public offering to $33 a share.

Doing some back of the envelope calculations and making assumptions that the company’s fourth quarter will be decent, the Financial Times calculated that GM shares at $33 a share the stock sold for 11.5 times projected 2010 earnings. At the $35 opening price, I calculate that the shares traded for 11.8 times projected 2010 earnings. That compares to 8.1 times for Ford.

The sudden enthusiasm for things auto has had me trawling through the space looking for companies that sell into the auto industry—but that don’t face the daunting task of figuring out some way to make money in a global car industry that’s awash in excess manufacturing capacity.

A auto industry supplier like Johnson Controls (JCI), with a 15% exposure to the U.S. Big Three (or whatever we call them these days) and a big and growing market share in China caught my eye yesterday because the company raised its dividend by 23% to 16 cents a share from 13 cents. That will only raise the yield on an annual basis to 1.7% but dividend increases, especially substantial dividend increases like this, are an indicator in my opinion that the company’s board of directors feels very positive about the medium-term trends in the company’s business. (Johnson Controls is a member of both my Jubak’s Picks http://jubakpicks.com/the-jubak-picks/ and Jubak Picks 50 http://jubakpicks.com/jubak-picks-50/ portfolios.)

And Johnson Controls, which isn’t just coming out of bankruptcy and doesn’t still have to sell a sizeable stake held by the U.S. government and that has a growing business in hybrid auto batteries, sells for just 14.9 times projected fiscal year 2011 earnings. (The company’s fiscal year ends in September 2011.)

As of November 18, I’m raising my target price for Johnson Controls to $42 by January 2011 from my previous target price of $39 a share by January 2011.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Johnson Controls as of the end of the September quarter. For a full list of the stocks in the fund as of the end of the most recent quarter see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/ )