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General Motors Stays Neutral

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On Jul 29, we maintained our Neutral recommendation on General Motors Company (GM - Free Report) . We appreciate the company’s focus on the emerging markets and future expansion plan across the globe. In addition, the stock has been reinserted into the Standard & Poor’s 100- and 500-stock index recently. However, we are concerned about its significant exposure to Europe as well as global economic weakness.

Why the Reiteration?

On Jul 25, General Motors reported earnings of $1.4 billion or 84 cents per share (including a net loss from special items) in the second quarter of 2013, beating the Zacks Consensus Estimate by 6 cents per share. However, earnings fell marginally by 6.7% from $1.5 billion or 90 cents per share in the second quarter of 2012.

Except for International Operations, all businesses performed well during the quarter banking on the recoveries in Europe and South America. Revenues in the quarter grew 4.0% to $39.1 billion, which is higher than the Zacks Consensus Estimate of $38.0 billion.

Following the release of the second-quarter results, the Zacks Consensus Estimate for fiscal 2013 increased 0.6% to $3.37 per share. The Zacks Consensus Estimate for fiscal 2014 rose 1.4% to $4.50 per share. Currently, General Motors shares retain a Zacks Rank #3 (Hold).

General Motors is expanding its footprint in emerging markets including Brazil, China and India. The company expects its global expansion strategy to enhance its sales and help meet the rising demand.

General Motors replaced H.J. Heinz in the Standard & Poor’s 500 and Standard & Poor’s 100 indices after the close of trading on Jun 6, 2013. The automaker was removed from the S&P 500 index in 2009 due to bankruptcy filing and $50 billion government bailout.

However, the company faces challenges from the ongoing Euro-zone financial crisis. The European division saw a 17.6% fall in revenues to $22.1 billion in 2012 and a 6.8% decline in revenues to $5.2 billion in the second quarter of 2013. In addition, strengthening of the U.S. dollar against most global currencies where General Motors operates will mar the company’s sales.

Other Stocks to Look For

Some stocks that are performing well in the automotive industry include Visteon Corp. (VC - Free Report) , Gentex Corp. (GNTX - Free Report) and Denso Corp. (DNZOY - Free Report) . All of them carry a Zacks Rank #1 (Strong Buy).

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