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How to Compare a Company Stock Against Peers and the S&P 500
by Sam Levine, CFA, CMT
Last month’s column covered what’s typically found in an online stock quote. Most online quotes provide basic information and then become progressively more informative — or overwhelming, depending on your perspective. We’ll put that information to work by comparing General Motors and Ford to each other and to the market itself. This is a solid starting point when analyzing any stock or industry that catches your attention.
Ford General Motors S&P 500
Price/level $16.39
$37.72
2,082.46
Open
High
Low
Market cap
16.53
16.55
16.36
$64.84B
37.88
37.91
37.60
$60.78B
2,093.10
2,097.43
2,081.87
$19.12B*
P/E ratio
Dividend yield
20.68
3.66%
22.66
3.18%
20.52*
1.99%*
* Median market cap and average P/E and yield from mid-March
I t’s our job, using the table at right, to decide which stock is more attractive.
Price
The first four rows (price, open, high and low) describe the range of the stock price during the day. It’s unwise to make a long-term investment decision on the basis of one day, so we ignore open, high and low. The current price allows you to calculate how many shares you can buy with the cash you want to invest. Before commissions, $10,000 can buy either 610 shares of Ford at $16.39 per share or 265 shares of General Motors.
The actual share price of a quality company shouldn’t matter. The value of your stock position should change in line with the size of your ownership stake in the company and how much the market values that stake, regardless of the share price.
Let’s do a quick example:
Market Capitalization
Smaller companies can respond quicker to new market opportunities than larger ones, but they’re also more vulnerable to challenges. Market capitalization, or market cap, is the measure of how much the market values the company.
Companies with higher market capitalizations usually have more financial flexibility, pro vided the market contin ues to value the company highly.
Both Ford and Gen eral Motors have very similar market caps and they’re behemoths when compared with the $19 billion median market cap of stocks in the S&P 500.
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610 shares of Ford at $16.39 per share is worth $9,997
265 shares of General Motors at $37.72 per share is worth $9,996
If the stock prices of both Ford and General Motors both simultaneously go up by 20 percent, here’s what your brokerage statement might look like:
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610 shares of Ford at $19.69 per share is worth
$12,010 (+20 percent)
265 shares of General Motors at $45.26 per share is worth $11,995 (+20 percent)
P/E Ratio
The price-earnings ratio is how many dollars in the stock price you need to pay for a dollar of the company’s net profit. The demand for shares drives price. If the price goes up and earnings stay the same, the P/E will rise. Both Ford and General Motors have similar P/E ratios to the market, but General Motors has a P/E ratio
10 percent higher than both the market and Ford.
Broadly speaking, it’s better to buy the same growth and safety at as low a P/E as possible. In our next article we’ll examine earnings growth closely.
The price of a stock on its own only helps us determine how many shares we can afford to buy or what we will get when we sell the shares we have.
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Dividend Yield
Dividends are payments to shareholders from the company, usually quarterly, and hopefully they come from

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the profits of the company rather than from its assets.
Dividends provide regular cash flow to investors. Strong com panies in crease their dividend payouts reg u larly as their profits continue to rise.
The dividend yield is the annual dividend — four quarters added together — divided by the current stock price.
Companies may choose not to pay a dividend so that they have more cash for growth, acquiring another company or a rainy day. Ford offers a higher dividend than General Motors does, and income-oriented investors will naturally want to focus more on investing into Ford. Both pay out more than the average of the S&P.
Which Stock Is Better?
This analysis shows that Ford is cheaper than General Motors and both are roughly in line with the S&P
500. It has a lower price-earnings ratio and its dividend yield is higher.
Remember that cheaper does not always mean better. You should begin to examine why the market values the company’s future earnings less than another. We’ll get to do that in future articles.
Sam Levine, CFA, CMT, is the found er of Markets, Etc., an online investing community.
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