Founded in 1908, General Motors Company (NYSE: GM) is the epitome of the great American auto manufacturer, producing vehicles in 37 countries across the globe. The auto giant has come a long way in the…
Founded in 1908, General Motors Company (NYSE: GM) is the epitome of the great American auto manufacturer, producing vehicles in 37 countries across the globe.
The auto giant has come a long way in the last 110 years, when William C. Durant founded the company with $2,000 in his pocket. General Motors today has an estimated market capitalization of $45.4 billion.
With valued auto brands like Buick, Chevrolet, Wuling, GMC and Cadillac, General Motors seems poised to reclaim its mantle of the greatest auto manufacturer on Earth — but to do that, the company is going to have to clear some serious hurdles.
General Motors stock at a glance. GM, currently trading just over $32 per share, has hit some potholes in recent years, even going into bankruptcy. But the company seems to be on the rebound, offers a strong dividend and has upside room for share price growth as it changes both its corporate culture and business model.
Analysts have pegged one-year share growth at $45 per share, a welcome sign for shareholders who already enjoy 4.8 percent dividend payments.
GM stock has benefited from taxpayer largesse — the company may not even exist today if it weren’t for an $80 billion bailout from the Troubled Asset Relief Program (TARP) at the height of the Great Recession. As Fritz Henderson, GM’s then-president put it at the time — “There is no Plan B.”
Since then, GM’s stock has been on the rebound with one analyst — Christopher Susanin of Levin Capital Strategies — predicting that the company’s share price will double in the next two years.
That’s the upside. Doubts over low returns and a languishing share price seem to be haunting GM right now, with no clear sign the company when and if the company will emerge from its current state to start posting some positive stock numbers.
Pros to buying GM stock. Whether you’re all in on GM stock depends on your faith in the company completing something of a miraculous comeback. That’s a murky outlook right now as GM seems to be taking a back seat to other auto manufacturers in terms of consumer popularity.
“The good news is that among our users, GM is the 26th-most popular stock,” says Bernard George, chief executive officer of NVSTR, a digital-based investment services firm. “However, it’s about 21 percent less popular than Ford ( F) and 73 percent less popular than Tesla ( TSLA).”
The most commonly cited reasons for owning GM among users are its tech-forward decisions like the acquisition of Cruise Automation and its partnership with Lyft. “Users also believe the new mid-engine Corvette is a sign of innovation and exciting design — an evolution that could attract new customers,” George says. “But that all could be outweighed by commonly cited risks for GM, including tariffs and pressure to manufacture in the U.S., which could increase GM’s cost structure.”
GM’s substantial investment in technology could swing the balance back to “buy” for investors, especially given Tesla’s recent troubles.
“In areas of significant transformation, one has to identify the technology that is going to prove to be enduring, while also identify the firms that will be the ultimate winners and losers,” says Robert R. Johnson, professor of finance at Creighton University in Nebraska. “The second half of that equation has proven to be particularly elusive.”
Many investors were betting that Tesla would be the big winner in the electric car sweepstakes, Johnson says. “Yet given all of the attendant problems with Tesla management, its huge debt load, and atmospheric valuation, I believe that a much more prudent investment is GM at a forward P/E of [5.2] times rather than Tesla at a forward P/E of ,” he says. “Investors committing funds to GM have a much higher margin of safety than those in Tesla.”
That said, Johnson is more bullish on General Motors stock as a long-term play. “It really is anybody’s guess where any stock goes in the near term,” he says. “I am much more confident that GM will likely provide investors with solid returns over the next 10 years.”
Cons to buying GM stock. There is no shortage of doubters among professional investors asked about GM stock.
“GM is looking a little worse for wear right now,” says Dale Gillham, an Australia-based investment analyst. “The stock is down 17.71 percent this year alone and appears that it may continue to fall another 10 to 15 percent in the short term. That said, GM is a great brand and trends nicely when it runs. Given this, you can definitely generate some profitable trades on it if you get your entry right.”
For now, General Motors is likely to remain a little bearish and will continue to trade down, heading towards a price target of $30 to $33 a share by March, Gillham predicts.
He’s not alone.
“On an as-reported basis GM still looks like a middling company with a weak 3 percent return on assets, and (GAAP EPS) that was 22 cents last year, down from $6 the prior year,” says Robert Spivey, director of research at Valens Research in Cambridge, Massachusetts. “It looks like a messy company, and that helps explain why some people still do not like the company, and why the stock is sitting at a 52-week low currently.”
Still, Spivey sees slivers of sunlight on GM’s horizon. “As-reported accounting statements make GM look like a bad company,” he says. “In fact, the fundamentals of the business are much better than they initially look.”
The bottom line on GM stock. With GM stock down 27 percent in the last 12 months and a target share price of $45, there is plenty of upside available here. But General Motors also faces some serious challenges ahead and needs some positive momentum to regain its bullish course.