General Motors (GM) under CEO Mary Barra (since 2014) has transformed from a lumbering giant to a well-run and (almost) respected automaker, suggests value investing expert Bruce Kaser, editor of Cabot Undervalued Stocks Advisor.
The company has smartly exited many chronically unprofitable geographies (notably Europe) and trimmed its passenger car roster while boosting its North American market share with increasingly competitive vehicles, particularly light trucks.
We consider its electric and autonomous vehicle efforts to be near industry-leading. GM’s much-improved North America cost structure allow it to remain profitable at perhaps an 11 million vehicle industry volume. Its GM Credit operations are well capitalized but will be tested in the pandemic.
The shares will remain volatile based on the pace of the economic re-opening, U.S.-China relations, its successes in improving its relevance to Chinese consumers, and the size of credit losses in its GM Financial unit.
GM had an encouraging quarterly report recently, reporting a $(0.50)/share adjusted loss that was vastly better than the consensus estimate for a loss of $(1.78)/share. Despite a 53% decline in revenues, operating profits were nearly break-even, reflecting the company’s aggressive cost-cutting efforts.
GM remains fully committed to investing in all-electric cars and other promising technologies. Much of the $9 billion in negative cash flow in the automotive segment reflected the build-up of inventory as part of the production ramp-up.
GM Financial’s credit metrics were steady. GM’s market share increased and dealer inventories are lean. The company’s liquidity and balance sheet remain healthy. Overall, an encouraging report.
GM shares remain essentially unchanged in the past week. Current Wall Street estimates project EPS of $2.40 (2x the prior estimate of $1.21) and $4.57 in 2020 and 2021, respectively. GM remains an attractive cyclical stock for investors and traders. The stock earns our "strong buy" rating.
