Ultra-low interest rates and plunging gas prices have been fueling demand for new vehicles in the US and GM is one of the biggest beneficiaries of this trend. The stock was recently upgraded to a Zacks Rank # 1 (Strong Buy).
About the Company
General Motors (GM) is one of the largest automakers in the world, with more than 212,000 employees in 396 faculties and 21,000 dealers around the world.
GM has five operating segments–General Motors North America, General Motors International Operations, General Motors Europe, GM South America and GM Financial. In the first nine months of 2015, 68.2% of the company’s retail vehicle sales were outside the US.
They produce, sell and service cars, trucks and parts under four core brands – Chevrolet, Buick, GMC and Cadillac.
Car Sales on Track for a Record Year
With strong sales for the month of November, auto sales this year appear to be on track to beat the earlier record set in 2000. GM sold about 229,000 vehicles in the US in November and about 346,000 vehicles in China, which is the biggest market for them. Further due to low gas prices, sales of heavier vehicles have been rising, resulting in higher profits for automakers.
GM has sold about 3.1 million vehicles in China through November this year. Increased demand for SUVs and a new tax incentive by the government is also helping car sales in the world’s largest car market.
Auto industry is currently ranked 43 out of 265 Zacks industries (top 16%).
Strong Quarterly Results
The company reported excellent operating results for Q3, beating the Zacks Consensus Estimate for earnings by a wide margin. Results were boosted by strong US demand for trucks and SUVs. Analysts raised estimates, sending the Zacks Consensus Estimates to $4.78 per share and $5.36 per share respectively from $4.54 and $5.18, before the results. The company has delivered a beat in three out of last four quarters.
Returning Cash to Shareholders
With strong performance in cash generation, the company has been able to return $4.6 billion to shareholders through dividends and share buybacks this year (as of October 19). They had raised their dividend by 20% in April and the stock currently yields 4.2%, making it an excellent holding for income focused investors.
The Bottom-Line
In addition to an improving outlook and a juicy dividend yield, the stock looks attractive on valuation front as well. It is currently trading at 7.22 times 12-month forward earnings, compared to the industry average of 10.42.
During the third quarter, Warren Buffet’s Berkshire Hatchway increased its stake in GM by 22% to 50 million shares from 41 million shares.
GM’s collaboration with Apple to distribute CarPlay—the software that displays an iPhone’s screen on the dashboard and gives access to applications, including Apple’s mapping application, is also reported to be aiding sales.
While higher rates would definitely be negative for the industry, the Fed is likely to move very slowly on rate hikes, and thus the auto industry is expected to continue to do well in the months to come, making this stock a nice addition to any portfolio.
Want the latest recommendations from Zacks Investment Research? Today, you can download7 Best Stocks for the Next 30 Days.Click to get this free report >>
Disclosure: I own shares of GM for the Zacks Income Investor Portfolio.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
GENERAL MOTORS (GM): Free Stock Analysis Report
Be the first to comment