What General Motors Company (ticker: GM) could really, really use right now is an automatic transmission: a message to the White House and Chinese government that convinces them to work out their current tariff tangle.…
What General Motors Company (ticker: GM) could really, really use right now is an automatic transmission: a message to the White House and Chinese government that convinces them to work out their current tariff tangle.
But that, dear investors, is not such an easy a holiday wish to grant. Even though China says it will temporarily cut the tariff on U.S auto imports from 40 to 15 percent, remaining tariffs on imported steel and aluminum make it difficult to keep manufacturing costs down.
And so GM and Ford Motor Co. ( F) will pull up to a yellow light as they approach the intersection of 2018 and 2019. For it’s one thing to put out a quality product while watching the bottom line. Yet not even an aggressive GMC Yukon XL driver can barrel through an international snafu of traffic-jam proportions.
Make no mistake: GM has angered the Trump administration for deciding to shed a total of 14,700 jobs and close its sprawling Lordstown, Ohio plant, where it builds the Chevrolet Cruze. The move combined with additional plant closings would cut roughly 15 percent of the automaker’s workforce.
But while the president may not like it and has made GM the latest target of his ire, it’s hard to slam the GM layoffs in light of what it could do to bolster the automaker’s long-term survival. At least in the short term, GM stock is up 5 percent since late October.
Meanwhile, GM announced that it would add 2,700 positions at several U.S. factories, and some employees affected by its decision to close five other plants will be eligible to transfer.
“I am bullish on GM stock,” says Robert Johnson, professor of finance at Creighton University’s Heider College of Business. And if you won’t take his word for it, consider a certain billionaire investor who famously drives a gold 2014 Cadillac XTS.
“Warren Buffett’s Berkshire Hathaway ( BRK.A, BRK.B) recently upped its stake in GM to 51.39 million shares from 50 million shares,” Johnson says. “It is a value stock, very attractively priced at 6.2 times forward earnings, and has a robust dividend yield of 4.1 percent.”
GM’s quarterly dividend pays out at 38 cents per share, up slightly from its December 2015 mark of 36 cents. To be sure, the stock hasn’t exactly landed in the winner’s circle this year: It’s down 19 percent for 2018. Yet GM CEO Mary Barra has tried to assure investors that the company has its course set firmly on what she’s called “an all-electric future.”
That might be just the thing to lure away investors who’ve fallen sway to the irrational exuberance that is Tesla ( TSLA). Besides barely ever turning a profit, “Tesla sells at a forward price-to-earnings ratio of 54 times and a price-to-sales ratio of 3.25,” Johnson says. “It’s nearly 10 times that of GM.”
Domino’s Pizza: Rolling in Dough
Sometimes, what sinks one pizza delivery juggernaut can provide a tailwind to another. The recent misfortunes of Papa John’s International ( PZZA) and embattled founder John Schnatter have provided a golden opportunity for Domino’s ( DPZ) to expand market share. In 2018, Papa John’s stock is down more than 27 percent. And Domino’s? It’s up 28 percent to $239 per share.
Domino’s also earns a top score from Blockforce Capital’s dividend health rating system, which assesses the likelihood that companies will grow or cut their dividends in the next 12 months. DPZ has a quarterly dividend of 55 cents per share — up close to a third from 2016 — and a 16.59 percent expected growth rate in the next 12 months, says Kian Salehizadeh, a Blockforce senior analyst and based in San Diego.
“Domino’s has lots of free cash flow to support future dividend growth,” Salehizadeh says, adding that “funds can be reallocated from future buybacks to dividend increases.”
Investors may also want to tip the Domino’s driver — as in new CEO Richard Allison, who took over in July for Patrick Doyle. Rather than rock the boat, Allison has announced nifty innovations such as “Domino’s Hotspots,” which will let customers order food from places without traditional addresses.
Unlike its rival, “Domino’s has become very high-tech and turned around their public image for the better,” Salehizadeh says. “Not only have they improved the quality of their food, but they’ve also streamlined the ordering system through their mobile app and sped up their delivery process.”
Whirlpool Corp.: Coming Out in the Wash
Truly, 2018 has not been the kind of year to make Whirlpool ( WHR) shareholders kiss their dishwashers in gratitude. “The business did not run smoothly,” says Benjamin C. Halliburton, chief investment officer at Tradition Capital Management in Summit, New Jersey.
Down 37 percent for the year, Whirlpool stock trades at about $104 per share, a low it last hit January 2013. Truly, that can’t be good news given how much the broader market has rocketed over that same period. The price of the S&P 500, for example, shot up from $1,571 to $2,400 — a 58 percent increase.
What made Whirlpool’s year so dishwater dull? Like GM, tariffs have complicated supply lines and sent a chill through investors. That may explain why right now, the majority of analyst firms remain on the “hold” fence; one rates Whirlpool a “buy” and a second a “strong buy.”
And yet, WHR represents what some experts believe is an undervalued stock — one with deep roots that among appliance companies make it the world’s oldest (1911) and largest (92,000 employees). It also has a healthy market cap of $6.5 billion.
“WHR trades at 8 times 2019 estimated earnings of $15.80,” Halliburton says. Its current quarterly dividend of $1.15 cents per share, which has almost doubled since 2014, delivers a yield of 3.82 percent. “Earnings should recover in 2019.”