GM stock hit resistance at a key average on Wednesday, a day after Ford stock recovered that key level for the first time since January.

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Still, General Motors (GM) and Ford (F) continues to ramp up ahead of next week’s earnings reports for the second quarter, although they pared early gains on Wednesday.

GM and Ford are making a massive transition from internal combustion engine (or ICE) vehicles to electric vehicles. But their more profitable ICE business is part of the reason a top Wall Street analyst is “increasingly constructive on both names” despite a host of headwinds.

Wednesday, EV leader You’re here (TSLA) reports after the close. Tesla’s outlook for shipments and cost control will be key amid a slowly improving chip shortage environment.

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GM Stock, Ford Stock Rise, Recover Key Support Level

Shares of General Motors rose 1% to 34.74 in trading today after jumping 5.5% on Tuesday. GM stock hit 35.02 intraday, briefly recovering the 50-day moving average.

Ford shares climbed 1.2% to 12.73 on Wednesday. Shares gained 5.3% on Tuesday to reclaim the 50-day line for the first time since January.

Ford reportedly plans to cut 8,000 jobs in the coming weeks to help fund its push for electric vehicles.

Tesla stock gained 0.8%, after retracing the 50-day line on Monday.

Shares of GM and Ford are eyeing their third consecutive weekly advance after hitting 52-week lows on July 5. This suggests investor optimism with GM and Ford due to the July 26 and July 27 reports, respectively.

So far this year, the relative strengths of GM and Ford stocks have lagged. A falling RS line means a stock is underperforming against the S&P 500.

Shares of GM and Ford are down about half from their January highs and remain well below their 200-day averages. There is no buy point in sight at this time.

The auto giants collapsed on various factors. Chief among them: the hit to vehicle production and sales from Covid-powered chips and supply disruptions. Another more recent concern is the rapid rise in inflation and interest rates.

On Tuesday, the US Senate introduced a bill to boost domestic chip manufacturing in a bid to outpace China. But it’s unclear whether this would have any real impact on automotive-related chips for years to come.

And on Wednesday, the U.S. Postal Service pledged to buy many more electric delivery vehicles than it had previously anticipated, rekindling hopes for workaholic group (WKHS). Workhorse stock jumped almost 16% from very low levels at 3.63.

GM profits, Ford profits

Early Tuesday, analysts expect GM’s second-quarter earnings per share to slump 35% as revenue falls 0.9%. By late Wednesday, Ford’s profits will rise 245% as revenues rise 39%, according to FactSet.

Ford has already revealed that its second-quarter U.S. auto sales rose 1.8%, defying a double-digit drop for most major rivals, including a 15% sales drop for GM.

Market watchers say Ford benefited from an above-average inventory of vehicles. It has suffered more than most in 2021 from the global chip shortage, but that appears to be changing.

In early July, GM revealed it had 95,000 incomplete vehicles, which are waiting for certain parts to be delivered to dealerships. On the other hand, Ford revealed higher dealer inventory for new electric vehicles heading into July.

“Constructive” analyst on General Motors, Ford

In a July 14 note, Morgan Stanley auto analyst Adam Jonas issued a bearish note on the auto sector.

“We have significantly reduced our earnings guidance, particularly in FY23 to reflect slowing sales growth, deteriorating price/mix and pressures on the auto credit complex,” Jonas wrote. But he takes a less gloomy view of General Motors and Ford, citing legacy companies

Amid the shift to electric vehicles, the Morgan Stanley analyst and his team believe the market may not fully appreciate GM and Ford’s ICE businesses.

“We think it’s time for investors to accept that while there may be some degree of optionality in the electric vehicle market, the direction of the outlook for GM and Ford is very much tied to that. remaining of the useful life of the ICE product line,” Jonas wrote.

He added: “At the current stock price, we not only believe the EV ‘option’ value has been correctly compressed to near-zero net present value…but the market may also be undervaluing the cash flow. liquidation of the ICE portfolio which goes too far, in our opinion.”

Jonas expects ICE’s decline to extend beyond 2030 and produce substantial cash flow in the meantime. He is “increasingly constructive” on GM and Ford stocks, remaining equally weighted on both.

Proving that there is life in the gasoline business, Ford unveiled its new pickup, the F-150 Raptor R, on July 14. The $109,145 pickup with a V-8 engine develops 400 horsepower. A few days later, GM unveiled the Chevy Blazer electric SUV, starting at $45,000.

New electric vehicles are promising for growth. But SUVs and gas-powered trucks are still today’s cash cows.

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