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Is General Motors (GM) a Steal Deal at its 3-Year Low?
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Shares of General Motors (GM - Free Report) hit a three-year low yesterday, dropping below $30 per share during intraday trading, before closing the session at $30.31. The decline can be attributed to the historic United Auto Workers (UAW) strike coupled with a looming airbag recall threatening to strain the automaker's finances further. With the stock at a three-year low, is it a tempting deal for value investors now? Or should you stay away from it considering the near-term hurdles?
Ongoing Strike & Recall Risk Dragging Down the Stock
The UAW had initiated an unprecedented simultaneous strike against the Detroit 3 automakers — General Motors, Ford (F - Free Report) and Stellantis (STLA - Free Report) — on Sep 15. Since then, the shares of GM have contracted around 10%. While some Wall Street analysts argue that the UAW strike was already factored into GM's stock price, the reality on the trading floor tells a different tale. GM's stock has seen only five positive trading days in the last 14 sessions. Moreover, GM disclosed that the strike had already cost it $200 million in lost production during the third quarter, a figure that might escalate if a resolution isn't reached soon.
In a bid to mitigate the strike's impact, GM presented its sixth counteroffer to the union yesterday. The automaker believes its offer would not only reward its team members but also ensure the company's success and sustainability in the long run. As negotiations continue round the clock, the stakes are high for both GM and its workforce.
Additionally, Wall Street Journal’s report stating that at least 20 million GM vehicles are fitted with potentially hazardous airbag inflators added to the woes of the U.S. auto giant. The government is recommending recall of the same to avoid fatalities and injuries, possibly leading General Motors to incur significant costs for replacements and repairs.
The recall concerns about 52 million airbag inflators supplied by Tennessee-based auto supplier ARC Automotive. So far, GM has recalled approximately 1 million vehicles due to this issue. However, the company contested the NHTSA's findings, stating that the current evidence and data do not necessitate any further recalls beyond what has already been done. Despite this defense, the shadow of a larger recall looms, threatening to impose significant financial and reputational costs on GM.
3-Year Low Price Point is a Golden Buying Opportunity
While these near-term concerns are triggering a sell-off, GM is still one of the top auto stocks to buy now for the long haul on the back of promising fundamentals. Especially, the company’s electrification push is likely to be a key growth driver in the coming years.
General Motors plans to roll out 30 fresh EV models by 2025-end. This year, it will have nine EV models in the North America market. Solid demand for GMC Hummer EV, Chevrolet Bolt EV and EUV, Cadillac crossover EV, Equinox EV, Silverdo EV, Sierra EV, Blazer EV and BrightDrop Zevo 600 is expected to buoy top-line growth. The firm’s modular battery platform, the Ultium Drive system, is aiding the transition to an all-electric portfolio. GM’s battery plants in Ohio, Tennessee and Lansing are likely to scale up its e-mobility prowess.
Additionally, General Motors has enough cash on the balance sheet to weather short-term headwinds and navigate economic cycles. The firm had total automotive liquidity of $38.9 billion as of Jun 30, 2023, including $16 billion of cash/cash equivalents. Recently, GM has secured a new $6 billion line of credit extending through October 2024. This move is seen as a strategic step to ensure financial stability amid the uncertainty surrounding the strike’s resolution.
General Motors stock does make a strong case for being undervalued at just 0.24X forward sales currently. This not only looks attractive when compared with the industry’s 1.85X, but it also compares favorably with its closest peers — Ford’s 0.30X and STLA’s 0.31X. At 4.17X forward earnings currently, GM is trading below its five-year high of 12.68X as well as the median of 6.19X. For those seeking discounted GM shares, now is the time to buy.
The Zacks Consensus Estimate for GM’s sales implies a year-over-year increase of 9.2% to around $171.2 billion in 2023 and edge up another 2.3% next year to $175.19 billion.
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Is General Motors (GM) a Steal Deal at its 3-Year Low?
Shares of General Motors (GM - Free Report) hit a three-year low yesterday, dropping below $30 per share during intraday trading, before closing the session at $30.31. The decline can be attributed to the historic United Auto Workers (UAW) strike coupled with a looming airbag recall threatening to strain the automaker's finances further. With the stock at a three-year low, is it a tempting deal for value investors now? Or should you stay away from it considering the near-term hurdles?
Ongoing Strike & Recall Risk Dragging Down the Stock
The UAW had initiated an unprecedented simultaneous strike against the Detroit 3 automakers — General Motors, Ford (F - Free Report) and Stellantis (STLA - Free Report) — on Sep 15. Since then, the shares of GM have contracted around 10%. While some Wall Street analysts argue that the UAW strike was already factored into GM's stock price, the reality on the trading floor tells a different tale. GM's stock has seen only five positive trading days in the last 14 sessions. Moreover, GM disclosed that the strike had already cost it $200 million in lost production during the third quarter, a figure that might escalate if a resolution isn't reached soon.
In a bid to mitigate the strike's impact, GM presented its sixth counteroffer to the union yesterday. The automaker believes its offer would not only reward its team members but also ensure the company's success and sustainability in the long run. As negotiations continue round the clock, the stakes are high for both GM and its workforce.
Additionally, Wall Street Journal’s report stating that at least 20 million GM vehicles are fitted with potentially hazardous airbag inflators added to the woes of the U.S. auto giant. The government is recommending recall of the same to avoid fatalities and injuries, possibly leading General Motors to incur significant costs for replacements and repairs.
The recall concerns about 52 million airbag inflators supplied by Tennessee-based auto supplier ARC Automotive. So far, GM has recalled approximately 1 million vehicles due to this issue. However, the company contested the NHTSA's findings, stating that the current evidence and data do not necessitate any further recalls beyond what has already been done. Despite this defense, the shadow of a larger recall looms, threatening to impose significant financial and reputational costs on GM.
3-Year Low Price Point is a Golden Buying Opportunity
While these near-term concerns are triggering a sell-off, GM is still one of the top auto stocks to buy now for the long haul on the back of promising fundamentals. Especially, the company’s electrification push is likely to be a key growth driver in the coming years.
General Motors plans to roll out 30 fresh EV models by 2025-end. This year, it will have nine EV models in the North America market. Solid demand for GMC Hummer EV, Chevrolet Bolt EV and EUV, Cadillac crossover EV, Equinox EV, Silverdo EV, Sierra EV, Blazer EV and BrightDrop Zevo 600 is expected to buoy top-line growth. The firm’s modular battery platform, the Ultium Drive system, is aiding the transition to an all-electric portfolio. GM’s battery plants in Ohio, Tennessee and Lansing are likely to scale up its e-mobility prowess.
Additionally, General Motors has enough cash on the balance sheet to weather short-term headwinds and navigate economic cycles. The firm had total automotive liquidity of $38.9 billion as of Jun 30, 2023, including $16 billion of cash/cash equivalents. Recently, GM has secured a new $6 billion line of credit extending through October 2024. This move is seen as a strategic step to ensure financial stability amid the uncertainty surrounding the strike’s resolution.
General Motors stock does make a strong case for being undervalued at just 0.24X forward sales currently. This not only looks attractive when compared with the industry’s 1.85X, but it also compares favorably with its closest peers — Ford’s 0.30X and STLA’s 0.31X. At 4.17X forward earnings currently, GM is trading below its five-year high of 12.68X as well as the median of 6.19X. For those seeking discounted GM shares, now is the time to buy.
The Zacks Consensus Estimate for GM’s sales implies a year-over-year increase of 9.2% to around $171.2 billion in 2023 and edge up another 2.3% next year to $175.19 billion.
General Motors currently carries a Zacks Rank #2 (Buy) and has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.