June 30, 2013 in Business

Big Three automakers could be major drivers for your portfolio

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In 2013’s first quarter, Detroit’s Big Three accomplished something that hadn’t been done in 20 years: All three gained market share. Ford (NYSE: F) and General Motors (NYSE: GM) are promising stocks to consider right now.

Ford’s CEO Alan Mulally’s “One Ford” vision is paying off big-time. The company is producing more profit than GM, off lower revenue, because it’s running so efficiently.

The good news for GM is that its potential isn’t as tapped as Ford’s right now. It expects to improve operations and significantly boost profits and margins by mid-decade.

Both companies are leaner and are having success with new models. Consider that Ford can’t make enough Fusions or Escapes to keep its inventories as high as it would like.

GM is a little behind Ford in releasing new vehicles because it needed to shore up its financials first. It’s planning to refresh, replace or redesign almost 90 percent of its vehicles by 2016. GM also has a leg up on Ford when it comes to its luxury Cadillac line, which enjoys higher profit margins than standard cars.

Ford and GM investors are happy with improving profits, operations, market share and vehicles, and the second quarter is shaping up to be just as profitable as the first. (The Motley Fool owns shares of Ford and its newsletters have recommended it.)

Ask the Fool

Q: What’s the short-term tax hit for stocks? If I bought shares of stock at $10 and now they’re at $25, what capital gains tax rate would I face when selling? – H.S., Escondido, Calif.

A: The short-term capital gains tax rate applies to stocks held for a year or less and is the same as your ordinary income tax rate, which can be as high as 39.6 percent. If you’re in the 25 percent bracket and your gain is $5,000, you’d face a $1,250 tax hit.

Note, though, that the long-term rate, for stocks held at least a year and a day, is just 15 percent right now for most investors. On a $5,000 gain, that would come to just $750. So if you’ve held your shares for almost a year, it might be worth it to hang on a little more. Learn more at fool.com/taxes.

My smartest investment

Decades ago, my investment club’s methods of seeking out undervalued and out-of-favor stocks led me buy shares of Gap Inc. I did very, very well with it, primarily because of two factors: (1) I didn’t sell it just because it was a winner, and (2) I benefited from the power of compounded growth over long periods. I recommend holding at least a portion of your winners as long-term investments. – M.R., Port Townsend, Wash.

The Fool responds: While shares of Gap have experienced downturns and stagnant years, they have rewarded patient investors well, averaging annual gains of 18 percent over the past 25 years, 12 percent over the past 20 years and 11 percent over the past decade. It has been paying a dividend for decades, too.

This is true of many solid, growing companies. You don’t have to find and invest in obscure companies to succeed. Those interested in forming or joining an investment club should visit betterinvesting.org, or read “Investment Clubs for Dummies” by Douglas Gerlach and Angele McQuade (available new or used at Amazon.com and Half.com).

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