The stock — my top conservative pick for 2023 — has never traded at a high multiple to sales or earnings, which is currently the case. But after taking a closer look at its recent operating metrics and guidance for 2023, I am convinced that it could appreciate significantly.
At the start of 2022, GM was trading above $60 less than two years after bottoming below $20 in the wake of the coronavirus pandemic. But once the Fed started raising interest rates to combat inflation, the automobile sector fell hard since most new car purchases are made with borrowed money.
However, that has not dampened demand for automobiles. In fact, total vehicle sales in the United States have increased nearly 20% since May to reach their highest level since January. That may be why General Motors raised its guidance for 2022 and stated that it “expects its rapidly growing portfolio of electric vehicles will be solidly profitable in 2025 in North America.”
Of course, no discussion of the electric vehicle (EV) market is complete without mentioning Tesla (TSLA), which finds itself in the unusual position of being on the outs with Wall Street these days. That may be due in part to the increasingly erratic behavior of its founder and CEO, Elon Musk, who is currently consumed with his recent acquisition of Twitter (TWTR).
Despite losing more than half its value over the past year, TSLA is still priced at more than 33 times forward earnings compared to a multiple of less than 7 for GM. Of course, the comparison is not entirely fair since Tesla only makes EVs while they only comprise a small fraction of GM’s total revenue.
If the company’s guidance for EV sales proves true, then GM should earn higher multiples to sale and profits from Wall Street. This isn’t the type of stock that is going double overnight, but it is the type of stock that could catch Wall Street by surprise.