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Top Picks 2020: General Motors (GM)

01/13/2020 5:00 am EST


John Buckingham

Editor, The Prudent Speculator

Auto and truck maker General Motors (GM) — a more conservative stock idea for 2020 — turned in a strong Q3, especially as the now-over UAW strike took $1 billion from EBIT and $0.52 from diluted EPS, asserts John Buckingham, value investing expert, money manager and editor of The Prudent Speculator.

That said, the company still turned in better-than-expected adjusted EPS of $1.72. There is no doubt that the strike will also impact Q4, especially in the highly profitable pickup business.

However, we think the recent results demonstrate GM’s evolution as a company and think that management has done a terrific job of ensuring that earnings won’t collapse in the next cyclical downturn in auto sales.

While the competition is always fierce in the auto industry and input costs can be a wildcard, we believe that GM’s core business continues to shine, while the company has conservatively deployed capital toward higher-return opportunities.

This is not the GM of old as the company has fully participated in Autonomous Vehicle development via its investment in Cruise Automation and in ride-sharing services through investments in Lyft and Maven.

We still like its solid balance sheet (more than $26 billion in cash and marketable securities), cost controls initiatives, ability to generate free cash flow, generous capital return programs, and electric and autonomous vehicle programs.

With EPS expected to trough above $4.75 in 2019 and rebound above $6.00 in 2020, we think GM is very inexpensive, especially as the stock also yields 4.1%.

(Editor's note: John Buckingham chose IBM as a top pick last year; the stock is up 22%. He now says, "Given our long-term orientation and long-held belief that patience is a critical component of successful investing, IBM would be a name to which folks should still give strong consideration. This is especially true given its single-digit forward P/E ratio and near-5% dividend yield.")

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