Image Shown: GM’s shares are breaking out.
GM’s stock has been out of favor for years, but with an attractive price-to-earnings ratio and healthy dividend yield, is the market finally coming around to the company’s tremendous potential?
By Brian Nelson, CFA
General Motors’ (GM) share-price performance has been an enigma. The automaker’s price-to-earnings multiple is less than half and its dividend yield is more than double that of the average S&P 500 company, and we thought it was only a matter of time that the company’s share price would break out. There can only be so much time before market anomalies are closed, and GM was a big one. We wrote the following September 7, “Why Won’t GM Break Out Already?:”
GM: Get investors talking about your future! Your valuation is attractive, the dividend is sound, but investors are missing the “storyline.” You need to change the public’s perception from one of a tax-funded bailout to one where GM should not only garner a market multiple of 17+ times but arguably one that should be higher than that. There is absolutely no possible way you can sit idly by while the market assigns a castle-in-the-air valuation to Tesla. Do what you do best GM: make cars that consumers want but get them talking about “the next big thing” out of your pipeline. Shareholders might be rewarded handsomely if you do. Fantastic sales performance and improved inventory, as we witnessed in August, may not be enough. Start dazzling investors with your talk about the future. Give the public something to wonder about!
That something to wonder about is finally here, “GM +4% on buzz over autonomous vehicle program.” Deutsche Bank is really excited about the company’s expanding autonomous vehicle program, and the investment firm has a price target north of $50 on shares. Though GM has closed the gap on our fair value estimate, we could see upside to the mid-$50s on the basis of the high end of our fair value estimate. General Motors was “added” to the Best Ideas Newsletter portfolio in August 2016 at $31.65 and to the Dividend Growth Newsletter portfolio in December 2016 at $36.43. At the time of this writing, shares are north of $42 each, a cool 30%+ advance from August 2016 – and that doesn’t include dividend checks. We hope you’re pleased!
Related: GOOG, GOOGL, TSLA