3 Key Reasons to Consider Investing in General Motors
General Motors: A Hidden Gem in the Automotive Sector
General Motors (NYSE: GM) is often overlooked by investors in favor of specialty electric vehicle stocks. However, I believe General Motors is not just an affordable stock right now but also possibly the most underrated option for investing in both electric and autonomous vehicles. Here are three compelling reasons why General Motors holds a significant position in my portfolio and why I plan to enhance that position in the future.
Tons of EV and Autonomous Potential
While GM's internal combustion engine (ICE) pickups and SUVs continue to dominate profitability, the company is in the early phases of establishing its electric vehicle (EV) strategy. The progress witnessed so far has been remarkable, including the successful launch of models such as the Hummer EV, Chevy Silverado EV, and Cadillac Lyric SUV. In total, GM delivered 22,000 electric vehicles in the recent quarter, showcasing a 40% increase year-over-year, along with a market share growth of 2.2 percentage points.
Several new models are slated to debut in dealerships soon, creating a potential long-term growth surge for the business. Additionally, GM's subsidiary focused on autonomous vehicles, Cruise, has recently forged a partnership with Uber to develop a driverless rideshare service, and Cruise vehicles are currently conducting road tests in multiple urban locations.
Incredibly Cheap Valuation
General Motors is trading at an exceptionally low valuation, with a price-to-earnings ratio of 5.5 times trailing earnings and under 5 times projections for the next twelve months. In summary, the company’s profits have consistently exceeded expectations, yet the market appears to lack confidence in GM’s ability to sustain or grow its profitability.
This inexpensive valuation can be attributed to remarkable profitability. GM recorded its best quarterly sales in over three years in the recent quarter, all while maintaining pricing power above the industry average, generating $5.3 billion in automotive free cash flow during this period alone.
Aggressive Buybacks
Management evidently views General Motors stock as undervalued, as evidenced by an impressive stock buyback initiative. Recently, GM announced an accelerated buyback program amounting to $10 billion, resulting in an extraordinary reduction of its outstanding shares by 18% in just one year.
Beyond this, an additional buyback plan worth $6 billion was authorized in June, with management targeting a reduction of outstanding shares to less than 1 billion, down from approximately 1.14 billion.
When executed for sound reasons, buybacks can significantly contribute to earnings-per-share growth and create substantial long-term value, especially if the shares are purchased at prices below their intrinsic value.
A Strong Business in the Early Stages of a Major Transition
Despite its potential, investing in General Motors is not without risks. The automotive industry is notably cyclical, and both sales and profits could experience sharp declines during economic downturns. GM also manages a vast financing operation holding around $121 billion in outstanding loans, which introduces additional credit risks.
Nonetheless, General Motors stands out for being exceptionally well-managed and possessing immense potential to warrant its low valuation. If the company can effectively execute its electric vehicle strategy while maintaining its profitable ICE operations, the future holds significant upside for patient investors.
Should You Invest $1,000 in General Motors Right Now?
Before making an investment decision regarding General Motors, consider the current market dynamics. General Motors is positioned solidly within the automotive landscape, leveraging its established brand and innovations in EV technology.
Frequently Asked Questions
1. What are the main reasons to invest in General Motors?
Investing in General Motors offers access to its strong electric vehicle development, low valuation, and an aggressive buyback program, all underpinning its potential for future growth.
2. How has GM performed in the EV market recently?
GM has shown significant growth in its electric vehicle sales, with a 40% increase year-over-year, and is launching several new models, enhancing its competitive position.
3. What is the significance of GM's stock buyback program?
GM’s aggressive buyback program shows management's confidence in its undervaluation and aims to enhance shareholder value by reducing the number of outstanding shares.
4. What risks are associated with investing in GM?
The main risks include economic cycles that can affect sales and profits, as well as credit risk due to the company's extensive financing operations.
5. Is General Motors a good stock buy compared to other investments?
General Motors offers a compelling investment opportunity with its established market presence and ongoing innovations in EV technology, making it a strong contender against other stocks in the market.
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