GM Rates Well for EVs and ESG

12/24/2019 5:00 am EST

Focus: INDUSTRIALS

Stephen Leeb

Founder and Research Chairman, Leeb Group

ESG stands for “environment, social, and governance.” A growing body of research suggests that companies that score high on ESG tend to outperform companies with poor ESG scores, observes Stephen Leeb, editor of The Complete Investor.

It is not hard to see why companies with high ESG scores will be trusted and more likely to maintain sustainable relationships with suppliers, customers, and stakeholders. It’s no accident that companies with high ESG scores tend to outperform.

One company with a high ESG ranking is General Motors (GM), which is the largest U.S. auto company, has the potential to become recognized as a cyclical growth company as opposed to a plain-vanilla cyclical company.

Since it emerged from bankruptcy at the decade’s start, GM has become the world’s most profitable major automaker, with profit margins that exceed those of domestic and foreign automakers alike.

By the first part of next decade, assuming U.S. and world growth remains on track, profits should hit a record high of above $8.00 a share, spurred by continued gains in productivity and higher margins. Record profits driven by a protracted uptrend in margins constitute one mark of a cyclical growth stock.

GM also has the ability to take advantage of new markets, especially ones that can grow strongly even when the economy weakens. Electric vehicles are a good example. Among the major automakers – i.e., ones not solely dedicated to EVs — GM seems to have an early lead with its Chevy Volt, a lead we expect it to maintain.

Among EVs priced under $45,000, the Volt has the longest range — 239 miles per charge and slated to rise to 259 miles in 2020. Range is far and away an EV’s most important characteristic. Comparing price and range, the Volt gives the lower-end Teslas a run for their money.

In the 2020s, GM’s Cadillac division will become home to higher-end EVs. Even while GM steps up research spending, FCFY is above 10%, giving GM a tremendous financial advantage over Tesla.

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