What the UAW strike means for the big auto stocks, according to top analysts

Published Fri, Sep 15 20231:24 PM EDTUpdated Fri, Sep 15 20231:56 PM EDT

Members of the United Auto Workers went on strike early Friday morning after being unable to reach a deal on a labor contract with General Motors , Ford and Stellantis , but there is a potential silver lining for investors: There may be a chance to snap up shares, said Morgan Stanley's Adam Jonas. "We think potential disruption from industrial action is likely to create buying opportunities in the D3 shares," the analyst said in a Friday note. "D3," or "the Detroit Three," refers to General Motors, Ford and Stellantis. Jonas added that downside risks on shares should be limited in the early stages of the strike, given that it had been a largely expected outcome by investors. Union members went on a targeted strike at three key auto plants: GM's midsize truck and full-size van plant in Wentzville, Missouri; Ford's Ranger midsize pickup and Bronco SUV plant in Wayne, Michigan; and Stellantis' Jeep Wrangler and Gladiator plant in Toledo, Ohio. It also marked the first time in history that the UAW launched strikes at all three of the big automakers simultaneously. Citi analyst Itay Michaeli also called the strike a "tactical buying opportunity," despite the uncertainty around the situation, as well as the potential for a lengthier period of production disruption. "We maintain our prior view that if stocks were to initially gap down on the 'strike headline,' we'd consider it a tactical buying opportunity," said Michaeli in a Friday note, referring to GM and Ford. The analyst pointed to depressed valuations and the firm's prior view of "plausible labor outcomes" as drivers behind that call. Shares of the three big automakers were largely positive in midday trading Friday as investors appeared to shrug off initial headlines of the work stoppage. GM was up nearly 1%, while Stellantis added more than 2%. Ford shares were flat. What's next? How negotiations proceed from here will be key. Citi's Michaeli noted, "The weekend is key." Odds of a lengthier work stoppage grow if there's no deal by Tuesday or Wednesday, the analyst said. "Depending on how weekend negotiations go, we'll have to monitor whether the UAW decides to expand strikes to other plants, and whether these strikes possibly lead to other production disruptions," Michaeli noted. Indeed, while the union did not target the most profitable full-size truck plants, these work stoppages may spread to other plants without a speedy resolution, the analyst said. Stellantis, in particular, may face a longer strike than Ford or GM because the company has signaled that it plans to close or sell 18 of its U.S. facilities. A recent investor survey by Morgan Stanley found that 96% of the respondents anticipate the strike will last longer than a week, while more than one-third think it could last over a month, Jonas said. "Moving forward, we expect all three stocks to be sensitive to UAW newsflow especially as it relates to the potential duration of industrial action," Jonas said. "Of course, more targeted strikes could open the door to a longer period of disruption for the Detroit three, which may not be priced into the shares at this stage." — CNBC's Michael Bloom, Mike Wayland and John Rosevear contributed to this report.