Shares in carmakers Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) were upgraded by Barclays, which said being cheap was "not usually a reason to buy, but at this level it is".
The bank upgraded to 'overweight' ratings on the Michigan-headquartered pair and a positive view on the wider US auto sector.
Different pressures on the two businesses have created "peak pain", which has sent both stocks to historical lows - with GM at four times forecast earnings for next year (its lowest multiple since coming back onto public markets 13 years ago), while Ford shares are changing hands for 5.5 times forward earnings ("two turns below its historical level").
A cheap valuation typically has been met with the investor argument that these long-toothed carmakers are cheap for a reason, but even with next year's forecast anticipating more 'normalised' profit, the Barclays team sees attractive upside potential if both stocks return to historical earnings multiples.
And while there are no 180-degree catalysts to fully eliminate structural concerns on the EV transition overhang and the impacts on 'peak pricing' fears, there are some potential sentiment boosts ahead, including a resolution to the UAW strike and earnings guidance proving not as bad as investors are currently worrying.
"We believe that even after factoring in EV headwinds, price normalization, and higher labor costs, Ford and GM can post EPS north of $1.50 and $6, respectively – still quite healthy levels."
On the wider US autos sector, the Barclays team prefers suppliers over OEMs, seeing "significant upside" in the supply chain as "valuations are depressed even in spite of positive earnings trajectory as production volumes return to normalized levels and inefficiencies unwind".
Macro concerns and regional risks in Europe, China and North America have challenged investor sentiment, along with a weaker EV outlook and potential cost hikes post related to UAW strike resolution.
"We agree these risks should not be dismissed. Yet we believe negative sentiment is overdone," the analysts said, seeing an opportunity for suppliers to recover, in part due to valuations currently a standard deviation below their historical valuation range relative to the S&P 500.