The Buzz

All markets and investing news all the time

GM stock is in the gutter. Time to buy?

April 1, 2014: 2:17 PM ET

The market has not been kind to General Motors.

Its stock is down about 15% in 2014 as the automaker has contended with seven million recalls and questions from victims' families and government officials about why it took 10 years to recall millions of cars with faulty ignition switches.

Still, General Motors (GM) has roared back since the days of its bankruptcy and government bailout. The stock went on a tear last year and is still up roughly 25% over the past year.

The company has plenty of cash on hand, and there's reason for optimism about the auto industry more broadly, which has already been a bright spot in the economic recovery thus far.

That's why Sterne Agee auto analyst Michael Ward sees GM's latest price drop as a buying opportunity. "It makes the purchase of the stock pretty compelling, particularly if you're looking beyond one day, one week, one month," he said.

Ward cites GM's strong product pipeline, and notes that the company is experiencing strong growth in international markets such as China, where sales of small sport utility vehicles are surging.

Related: GM: Steps to a recall nightmare

GM will also benefit from robust auto demand in the United States over the next three to five years, Ward claims. That's because 40% of the cars on the road now are 12 years or older.

"It's the oldest fleet you've ever seen, and its going to need to be replaced," he said.

Additionally, Ward likes GM's financial position.

The stock trades at around nine times 2014 earnings estimates, according to FactSet. By comparison, Rival Ford (F) trades at 12 times 2014 earnings.

And after emerging from bankruptcy and successfully re-entering the public markets in 2010, the company has $20 billion of cash on its balance sheet.

But that pile of cash is deceiving, according to Matt Stover, an analyst at Guggenheim Securities who isn't buying on the General Motors dip. He mentioned a big debt burden and unfunded pension liabilities as reasons for ongoing concern.

Further, he said GM will be plagued for years by expenses related to the recalls and the subsequent investigations. Such costs include settlements with victims families and possible fines by the government.

Toyota (TM) just agreed to pay $1.2 billion to settle a criminal probe into its conduct during its massive faulty accelerator recall from four years ago.

Related:  Toyota's huge fine won't dent its $60 billion cash pile 

Still, Stover believes the bad GM headlines won't keep consumers away from GM dealerships. He said car buyers usually look at third-party review sites such as J.D. Power and Associates rather than the news for advice when buying a car.

"I think consumers are immune to connecting the dots between recalls and quality," he said.

And investors tend to forget about recalls after awhile. Shares of Toyota (TM) are now substantially higher than where they were during the worst of its 2010 recall problems.

Posted in: , , ,
  • Auto stocks revving up for a rebound

    This article was published in the September issue of Money magazine.

    While car manufacturers in June reported their strongest monthly sales in nearly six years, the industry hasn't fully recovered. Analysts forecast that vehicle sales in the U.S. should reach 16 million by 2014, which is still below the pre-financial-crisis highs of more than 17 million.

    Since the dark days, though -- when sales dipped to 10 million in 2009 -- car companies have MORE

    - Aug 28, 2013 9:25 AM ET
  • Ford stock revs up to a new high

    Ford is in focus, and investors like what they see.

    The American car manufacturer's stock rose 3% to a new 52-week high Tuesday, and is up 18% for the year.

    Ford (F) recently told investors that it plans to roll out more vehicles by expanding its U.S. manufacturing capacity.

    Analysts at JPMorgan (JPM) told investors Tuesday that they think the stock has room to run to $16 from a little over $15 now.

    The automaker MORE

    - May 28, 2013 1:09 PM ET
  • Ford stock not driving over fiscal cliff

    The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.

    Anyone who's seen "Thelma and Louise" knows that cars and cliffs don't tend to get along too well. But shares of Ford (F) are up nearly 15% since the broader market first started to slip in MORE

    - Nov 27, 2012 12:57 PM ET
  • Ford and GM rev up after earnings

    Ford and GM rallied Wednesday after both automakers topped third-quarter earnings forecasts, despite soaring losses in Europe.

    Shares of Ford (F) climbed more than 5%, as the company's record profit of $2.3 billion in North America helped offset its $468 million loss in Europe, bringing losses in Europe so far this year to just over $1 billion.

    Meanwhile, General Motors (GM), the largest U.S. automaker, reported a third-quarter profit that trounced analysts' estimates. Though MORE

    - Oct 31, 2012 1:12 PM ET
  • Consumers on 'auto' pliot. But can solid car sales last?

    Stocks were flat Wednesday morning and one reason was the disappointing retail sales report for May. (Traders may have also been transfixed by JPMorgan Chase (JPM) CEO Jamie Dimon on Capitol Hill.) But if you dig behind the scary headline numbers, i.e. that sales were down for a second-straight month, you'd notice two key (and related) things. Gas prices are lower and auto sales are up.

    The sharp decline in gas MORE

    - Jun 13, 2012 1:15 PM ET
    Posted in: , ,
  • Stupid Stock move of the day! GM

    #StupidStock move of the day! $F deserves to be up because of Moody's upgrade. But $GM riding coattails on day like today? Seems odd to me.— Paul R. La Monica (@LaMonicaBuzz) May 23, 2012

    Stocks are plunging today because of worries about Europe and the global economy. You wouldn't think that would be great news for car companies, arguably one of the most economically sensitive businesses out there. Yet, shares of MORE

    - May 23, 2012 2:09 PM ET
    Posted in: , ,
Fear & Greed
Sponsored by

To view my watchlist

Not a member yet?

Sign up now for a free account
Stupid Stock Move of the Day
#StupidStock Move of the Day. Yes, $ISRG results beat forecasts. But up 15% even though EPS and sales still fell? Domo arigato, Dr. Roboto.
Powered by WordPress.com VIP.