For Immediate Release
Chicago, IL – January 9, 2019 – Zacks Equity Research General Motors (GM - Free Report) as the Bull of the Day, Exxon Mobil (XOM - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Advanced Micro Devices (AMD - Free Report) , Nvidia (NVDA - Free Report) and Intel (INTC - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
2018 was a difficult year for automakers. Excluding electric automaker Tesla, the average share price for companies in the automotive industry was down more than 20%. Many of the issues that have plagued auto stocks in the recent past are now being resolved and there are now definitely reasons to give the industry another look.
General Motors, finished last year more than 25% off of its 52-week highs. The December 31st closing price of $33.45/share was essentially the same as the $33/share November 2010 IPO price as the modern GM began trading publicly once again after bankruptcy and a US government sponsored bailout.
In November, GM announced a major restructuring plan that included idling five factories, widespread layoffs and a redesign of its product lines, with more trucks, SUVs and crossover vehicles and almost no traditional sedans - which have fallen out of favor with consumers. The moves are expected to add more than $6B in free cash flow by 2020.
Though the move initially drew the ire of the Trump administration – which has made preserving US manufacturing jobs a key priority – it’s clear that CEO Mary Barra has both the insight to think towards the future and the guts to make difficult or unpopular decisions that are in the long-term best interests of shareholders.
In addition to the restructuring, external events seem to finally be lining up in GM’s favor as well.
Oil prices are near multi-year lows thanks to a global supply surplus and lagging demand. The large trucks and SUVs that sell the best when gasoline prices are low are also the most expensive and highest margin vehicles for GM.
Trade negotiations between the US and China seem to be improving lately. On Monday, an American delegation of midlevel trade officials began two days of talks with their counterparts in China, and early reports about progress have been encouraging. If the talks are successful, Chinese representatives are expected to travel to Washington within a few weeks to meet with Treasury Secretary Steve Mnuchin and Robert Lighthizer, the US Trade Representative. The Trump administration believes strongly that the relative strength of economic conditions in the US - especially in comparison to weakness in China - gives them considerable leverage in negotiations to end the trade war.
The trade war has been difficult for GM for several reasons. Tariffs on steel and aluminum made raw materials more expensive, Chinese Tariffs on imported vehicles made American cars more expensive for Chinese consumers to purchase and the negative impact of the trade war on the Chinese economy has made consumers less able to afford new purchases.
Any progress toward resolution would be a big shot in the arm for GM.
In the fast-evolving industries of ride-sharing and autonomous driving, GM might have a leg up on both Uber and Lyft with it’s Cruise Autonomous division, which it acquired in 2016 and has been developing ever since. GM has been testing electric Bolt vehicles with driverless capability in cities around the US and has plans to deploy a fleet of thousands of driverless ride-share cars at some point in the future.
Eventually, the Cruise division could possibly be spun off as a separate company, sold or kept as its own GM division, but any of those outcomes would be a win for GM investors.
Earnings Estimates Rising
GM was able to deliver a big earnings beat in the most recent quarter, netting $ 1.87/share, almost 50% higher than the Zacks Consensus Estimate of $1.26/share. When the company reports full-year 2018 results on February 5th, analysts expect to see net earnings of $6.27/share, well above recent estimates of $5.96/share.
GM is currently a Zacks Rank #1 (Strong Buy).
We won’t have to wait until February for our next look at the future of GM, however. The company is scheduled to issue an investor update this Friday January 11th and also to announce its future plans at the Detroit Auto Show next week.
Though it’s been a difficult stretch for US automakers lately, GM looks well positioned to thrive going forward.
Bear of the Day:
Recent low oil prices have been a boon to individual consumers and businesses alike, but they’ve also created a difficult situation for oil companies. With WTI crude still below the $50/bbl. level amid fears of both global oversupply and decreasing demand, earnings estimates at Exxon Mobil have been contracting.
Crude futures fell more than 35% during the last 3 months of 2018, due to increasing supply from the world's top three producers — the United States, Russia and Saudi Arabia - while demand grew less than expected.
The US is now producing more than 11.5 million barrels/day and is forecast to top 12M/day soon. Saudi Arabia and Russia stepped up production last year in anticipation of a sanction related falloff in output from Iran, but then the US granted eight major exceptions allowing other countries – most notably India – to continue purchasing from Iran and the result is a global supply glut.
In addition to oil price concerns, Exxon Mobil was dealt a blow on Monday when the Supreme Court of the US decided not to hear XOM’s appeal of a ruling from Massachusetts State Court that will require the company to release internal documents about its knowledge of the effect of fossil fuels on climate change.
The suit was brought by Massachusetts Attorney General Maura Healey and alleges that Exxon violated consumer protection laws and also misled its own shareholders by not disclosing what it knew about the damage its products may be causing the environment.
We don’t know for sure what the documents will contain, but based on the fact that Exxon fought hard to avoid release, it’s a reasonable bet that the information contained will not cast Exxon in a favorable light and may subject the company to legal liability. On its website, the company claims its "Understanding of climate change has tracked the scientific consensus on climate change, and its research on the issue has been published in publicly available peer-reviewed journals,” but critics contend that Exxon has also financed groups that deny climate change.
Exxon is facing several other lawsuits about its role in climate change and also a suit from the Attorney General of New York State that alleges the company misled its own investors about the degree to which global regulations regarding climate change would affect its results - a unique legal strategy.
Analyst revisions have been falling and the biggest impact has been in the Zacks Consensus Earnings Estimate for 2019, which has been slashed from $5.96/share to $4.79/share in just the past 60 days.
Exxon Mobil is a Zacks Rank #5 (Strong Sell).
Here’s What Investors Should Expect from AMD in 2019
Shares of Advanced Micro Devices dipped in morning trading Tuesday one day after it and fellow semiconductor power Nvidia surged. So, investors need to know if AMD is likely to return to its pre-market downturn performance in 2019, or if the historically cyclical nature of the chip industry is set to hurt the firm.
On Friday, tech investor and lead portfolio manager at the Wireless Fund, Paul Meeks, voiced his confidence in AMD. Meeks likened the chip firm to Intel’s run of dominance in the PC industry in the 1980s and ‘90s.
Meeks told CNBC that he predicts AMD stock will climb 50% within the next three years as it expands across data centers, servers, and gaming. “AMD will never become a household name like Intel or even like Boeing, but you're going to hear a lot more from it," he said last week.
Investors can see that shares of AMD had skyrocketed over the last three years. AMD stock was also on a stellar run in 2018 until it plummeted in the fall along with the broader market. AMD saw its stock price climb as high as 8% Monday. Yet, shares of AMD fell 3% to roughly $20 through mid-morning trading Tuesday. The dip has AMD stock resting roughly 41% below its 52-week high of $34.14 a share.
Q4 & Fiscal 2019 Outlook
AMD is coming off a disappointing third quarter that saw the company’s revenues fall short of Wall Street expectations. The firm’s Q3 revenues climbed 4% from the prior-year quarter but fell 6% sequentially to $1.65 billion. AMD also provided subdued guidance on the back of slowing GPU demand from cryptocurrency miners.
Looking forward, the firm, which makes chips for the gaming and data centers industries, among others, is expected to see its Q4 revenues slip 2.7% to reach $1.44 billion, based on our current Zacks Consensus Estimate. The firm’s full-year revenues are expected to surge roughly 22% to reach $6.50 billion. But much of that growth is based on AMD’s impressive first-half of 2018.
Investors should also note that AMD’s Q1 2019 revenues are projected to fall 12.2% from the year-ago period. With that said, the company’s full-year 2019 revenues are expected to climb 5.3% above our current year estimate to reach $6.84 billion. We can, however, see that AMD’s annual revenues have gone up and down over the last 15 years, which helps show us just how cyclical the semiconductor business can be.
Things do look more positive for AMD when we move onto the other end of the income statement. The firm’s adjusted quarterly earnings are expected to pop 12.5% from the prior-year quarter to reach $0.09 per share. Plus, AMD’s full-year EPS figure is projected to skyrocket over 170%. Peeking even further ahead, the company’s fiscal 2019 earnings are expected to come in 36% higher than our 2018 estimate.
Clearly, AMD’s bottom-line growth appears impressive. And earnings growth has been proven to be one of the best long-term indicators of positive stock price movement. But we should note that AMD’s earnings estimate revision activity has trended in the wrong direction recently. This means at least some analysts are less optimistic about AMD’s future earnings growth.
AMD is Zacks Rank #3 (Hold) at the moment, and its earnings growth projections appear strong. With that said, the company’s top-line is expected to stumble over the next few quarters and expand only around 5% in 2019.
Overall, it is up to investors to decide if AMD stock presents a solid buying opportunity at the moment, simply because it rests roughly 41% below its 52-week high. But remember the chip industry looks poised to remain cyclical in nature and trade tensions between the U.S. and China still loom overhead.
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