I have a position in ally financial stock that's down 20% at the moment because of the recent market and sector volatility. With rate hikes coming this Wednesday I'm assuming it will be a positive catalyst for financial stocks like $ALLY and I would like to DCA before then.
A few questions I'd like to clear up:
I'm not sure if I'm reading their 10-k correctly but it seems like over 80% of their income is in automotive finance.
With car prices being inflated and I believe that they'll go down substantially in the future as the supply constraints start to ease and as interest rates rise.
With interest rates rising and prices falling, most of the auto loans they gave out will be “underwater”. How much does this affect Ally? I think most car payments are around $300 a month which isn't that much even if they're “underwater”. How big is the risk of people defaulting on their underwater automotive loans?
Their auto finance segment increased by 3x in 2021 compared to 2020.
Other than that risk they seem really cheap compared to other banks with a:
PE: 4.93
Price to Tangible book: 0.87
| ($ millions) | 2021 | 2020 |
|---|---|---|
| Automotive Finance | 3,384 | 1,285 |
| Core Pre-Tax Income | 4,128 | 1,470 |
Would you invest in $ALLY? and is there anything else I'm missing?
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