Inside Wall Street: GM back in driver's seat

Despite naysayers' wary forecasts, the auto industry's comeback stock is cruising to new highs.

By Gene Marcial Jun 6, 2013 1:22PM

 Businessman driving copyright Pixland, JupiterimagesGeneral Motors (GM) rejoined the globally followed S&P 50-stock index Thursday -- something of an imprimatur for the major automaker.


GM's re-entry into the blue-chip club is expected to erase any doubt that the stock of the once-embattled company is back in the big leagues. It should entice large institutions, as well as wary individual investors, to re-embrace GM, which for many years was the world's largest auto and truck manufacturer.

 

GM remains the U.S. market leader, with about an 18% share in 2012, although it has fallen to No. 2 as the world's second-largest car and truck maker. But its stock has been riding high, with some analysts predicting that it will hit records this year.

 

Having plunged to as low of $18 a share in mid-July 2012, the stock has recovered to a 52-week high of $34.96 on Tuesday. At least one GM watcher puts the stock's fair value at more than $50 a share.

 

GM's total sales in the month of May this year, up 3.1% from a year ago, were its "best month since September of 2008," notes David Whiston, an analyst at Morningstar. He believes the stock is way undervalued, placing its fair value at $52 a share.

 

Compared with Ford Motors' (F) 14% sales rise in May, some observers consider GM's sales as disappointing. But Whiston says GM's May sales are not as weak as some perceive. "Investors must look deeper into the numbers," he argues.  

 

Part of the weakness is due to the 26% decline in GM's fleet business from 30% a year ago. And rentals al declined, at 15.9% from 17.9% a year ago. But Whiston isn't much concerned.

 

"We aren't bothered by this decline despite any possible share loss, since rental fleet business is the least profitable among its fleet business and GM expects its June commercial fleet sales to increase," the analyst says.

 

And GM's retail channel sales posted increases for all four brands, he adds, mostly notably a 37% increase for Cadillac -- which had its best May since 2007. Cadillac's year-to-date sales increase of 38% was its best since 1976.

 

For a company that emerged from bankruptcy protection in July 2009, GM is now in sound financial health: Whiston expects the company to earn $2.24 a share in 2014 on projected revenues of $160.8 billion, up from an estimated $3.30 a share this year on estimated sales of $155.3 billion. Last year, GM posted profits of $3.74 on lower revenues, of $150.2 billion.  

 

"GM has strong cash flow generation, significantly improved its North American margins, excess cash and leading positions in emerging markets," says Brian A. Johnson, analyst for U.S. autos and auto parts at Barclay's Capital, who rates GM as overweight.

 

"GM offers compelling upside as one of the cheapest stocks in our coverage," despite the need to address European capacity and pension issues, says Johnson.

 

Although his price target is $38 a share, he says there's an upside case where the stock could reach $54 a share: "Pivoting to 2014, should earnings stay constant but the multiple expands to 3.5 times (closer to the historical average for a far more challenged "old" GM), GM shares could reach $54 a share," Whiston says.

 

With leadership positions in the world's fastest-moving and largest automotive markets, shares of GM, which is striving to regain the crown as the world's largest auto and truck maker, are now among the most attractive investment bets.  


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Tags: FGM
37Comments
Jun 6, 2013 2:48PM
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GM....Is paying back the money through stock sales by the U.S Government..

Much of the rest is coming through the Millions of jobs saved, paying taxes on income and other venues...

Plus the spendable cash that these people bring to the Market Place..

Otherwise we would have lost some of the last heavy industry we still had left..

Many people are extremely "short-sighted" about this situation...

The Big 3...overall were saved....spin off jobs.

Many suppliers were able to stay in business.

Truckers and transportation,etc.

Many dealers were able to stay in business.

Other biz included Bars and Restaurants, corner stores and gas stations and hundreds of Ma&Pa type operations,real estate/realtors,etc..

The implications had far reaching effects across our Nation.

 

Jun 6, 2013 3:19PM
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There are a lot of incompetent, poor losers leaving comments on this site.  These people are more concerned with politics and their foolish, hard core philosophical positions than with what is best for Americans as a whole.  These ;people think it would have been better for two million more people to be out of work and another 1/2 million homes going into foreclosure because of the unemployment.  These idiots don't understand that GM did pay back the government loans they obtained because both Bush and Obama saw what was best in this case, and bought stock in GM in place of part of the debt.  These people don't understand that money invested in stock is never guaranteed to be repaid, but is an investment in the long term future.  These people don't understand that the auto business is a high cash flow business trying to survive a banking system that was frozen and not lending.  These stupid people would rather seriously damage the US auto industry if not lose it all together.  These stupid people don't know that Japan similarly loaned money during the banking freeze to keep Toyota in business, but some how fair trade is not a priority to the anti-GM crowd.  These people do not realize that GM cars have only 1/4 the factor recalls of Toyota.  These stupid people never cease to amaze me with their idiocy. 

 

Bob Scherrer

Jun 6, 2013 1:39PM
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Apparently, some folks don't want to hear about how well American Auto Companies are now doing except for sales/losses in Europe.
Jun 6, 2013 2:54PM
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No Fatty Cakes, your first comment was enough...Everyone knows you really don't understand the situation....And don't drive American cars anyway...Commie !!
Jun 6, 2013 4:10PM
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We have 2 GM cars parked out back...Other stuff in the barn...

One is 14 years old, never more then general maintenance problems...

The last bought new about 4-5 years old, nothing but oil changes and 2 wiper blades...

Getting new tires in a few weeks.

 

We have owned over 65 cars/trucks....3/4ths probably GM...I don't need anyone to tell me about cars, unless I ask.

Jun 6, 2013 2:42PM
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GM will do even better and be able to pay back its debts to the government and its employees and the American Public if more people told GM to invest it right here in America and help put more Americans back to work.

The greatest generation understood why we keep things in our own house and not let everyone else have a piece of the action!

If we had learned that lesson then America would never have had the latest depression.

Yes, America - try to call it what you will! It was not a recession because the size of the population has doubled since the last one.  See how things can be manipulated, Obama did not save GM by giving them the money.

It actually was a Republican who gave them the means of exiting bankruptcy and restoring the GM pension fund for the Union. Who, by the way the unions still have not learned that things change and you do not stick as Democrats when they are the ones selling you out.

Look at the timeline. It tells the real story. GM was still bleeding money and faltering until a Republican suggested that GMAC be pulled out of the company and made it's own entity and that the pension money be given to the Union to restore their equity to their retires due to a certain non GM company that lost their pension money to begin with could not replace it. 

It was then and only then that GM started quickly to come out of the bankruptcy and be able to be in a position to keep jobs and pay back the money they borrowed. This was well after Obama and the government started loaning GM the money. This was all suggested and done by a private citizen Republican registered voter not the administration.


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Of course GM is doing well. They stuck, at least a million Americans, with huge losses, when they filed bankruptcy. The bankruptcy got rid of billions of dollars of debt. More responsible companies, like Ford, managed, there company better, and did not stick it, to the people that buy there vehicles, and have money invested in Ford.
Jun 6, 2013 2:24PM
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I'm so glad they are doing so well......now pay back the money you borrowed from me and the rest of the taxpayers....all of it....and don't use other gov't money to do it like you did the last time....also pay back all the people you screwed when you filed for bankruptcy.......when you do all of this, then and only then, might I even consider buying one of your products....Obama success story my a$$.... 
Jun 6, 2013 4:46PM
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GM was mismanaged for many years, poor designs and a lack of emphasis on quality. I believe they've truly turned things around with beautiful sporty designs like the new Camaro with 400 horses and still get 25 mi per gallon on the hwy, about the same mileage as many luxury V sixes with superb handling and pure farfegnugan. Clearly the design and quality have improved and that's bringing customers back.
Jun 6, 2013 3:09PM
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You guys really are similar to sheep, wandering in the brush;

 

When you don't have Kramer or Antman Merryday around....

Jun 6, 2013 5:59PM
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The financial Crisis was actually the Best thing to happen to the American Auto Industry because it forced those Companies to rethink how they were doing business. Now they are far better positioned/prepared to make profits at far lower annual levels.

 If the economy does ever stand on it's on two feet without the FEDS, folks will find that American Auto Companies making continually a unbelievable amount of Record Profits. Keeping a car running many times is simply as making sure the Oil is Changed. Making sure all your Belts are changed on time. Keeping all your fluids levels right. Doing the simple things will likely keep most Cars running a long long time.
Jun 6, 2013 3:07PM
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Buzz...Almost wanted to read your stuff skimmed...Started sounding like POL-Rant..Gave up...

 

First of all there was no "latest Depression".....Don't think you really know what one is...??

 

And Obama had nothing or near nothing to do with giving GM money...

Do you really expect me to find the rest of that credible..???

Jun 6, 2013 9:40PM
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Some would ask, like Fatty Cakes, why 65 cars.?...Well we owned a farm/ranch and a business also.

And had a few collector cars over the years....Never bought any Fleet vechicles, all were privately owned..

Have probably driven 15-20 Fleet vechicles over about 30 years also...

Some were Fleet junk, others were top of the line cars or trucks.

 

When I need to know about cars or trucks;;;  Fatty, I'll leave you a request note.

Jun 6, 2013 2:30PM
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After the latest announcement this week of GM stock sale by our government bean-counters, the balance remaining will require a stock sell price of $145 - $150 per share.  Since that isn't happening, yes, it is easy to show that Government Motors has taken the taxpayers for BILLIONS. . . .
Jun 6, 2013 4:12PM
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It is a well known fact: If GM & Chrysler went down, so would Ford, Toyota, Nissan, etc. The suppliers for all of these brands would go down as well. The big picture is GM paid back the loads and will pay back most with stock. Whatever the Govt losses has already been made up in income taxes, consumer spending taxes, etc form the millions of jobs that were SAVED! These jobs will continue to be fruitful to the federal government for decades to come. This fact cannot be denied. Anyone who poo-poos this is plain wrong.

 

Also, Toyota has been given a gravy train in the U.S. Tax abatemments, low wages, ZERO healthcare & pension costs.(Health care is subsidized by the Japanese Govt). So, how does Toyota do? The most recalls in automotive history!!!!!!!!!!!!!!!!!!!!!!!!!!! Why doesn't the media & naysayers talk about that? Mainly, because it will negate their argument that imports have higher quality, etc.

 

I'd really like everyone to look around when your on your way home each every day. Look at how many businesses are spun off from the automobile manufacturers. Think about it & buy American.

 

 20 years from now, those same naysayers will be buying their grandkids cars at their local Al Qaeda dealership.

Jun 6, 2013 3:19PM
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Fatty....I've seen rusted out hulks of several different Auto manufactures buildings over the years.

Some even a quarter to half a mile long...or longer.

Really isn't nothing new..

Same in the Steel industry and/other large operations...

If not for TARP, probably most would have been that way Nationwide..?

 

Seen the same thing in other business...4-10 floors empty...Business gone,done.

Others consolidated operations to one half of a floor in 12 story buildings..

Yup the future is passing us by, at a very quick clip...And we don't do anything about it.

Jun 6, 2013 4:29PM
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Very Good post DT(gmdave) and informative...

We have way too many ignorant people in our Nation..

To have realized the consequences...They are led by the Media and the ill-informed.

You appear to be retired...Enjoy your life.

Jun 6, 2013 3:59PM
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Go ahead, buy your GM car, in a couple of years you will start having problems.
American cars may sell, they may look good and the price may be right.....
but American cars have NO LONG TERM RELIABILITY.  Period. EXCLAMATION POINT!

Jun 6, 2013 4:09PM
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they need to quit sending factorys overseas ,trucks in mexico
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