With shares of General Motors Company (NYSE:GM) trading at around $32.85, is GM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
General Motors is a feel-good story. Americans love comebacks, and General Motors definitely fits the bill. Another feel-good aspect of this story is that based on employee reviews at Glassdoor.com, General Motors is a company that truly tries to do the right thing for its customers. And according to employees, it never cuts corners. In all, employees see the company they work for as the good guys. And an impressive 77 percent of employees approve of CEO Daniel F. Akerson.
It's widely believed that corporate America is evil. However, in this case, the good guys are winning. Below is a quick look at April sales improvements:
Chevrolet: Increased 11 percent
Cadillac: Increased 34 percent
Buick: Increased 11 percent
GMC: Increased 7 percent
General Motors is also consistently launching new vehicles, which is an indication of confidence in future prospects. The company is performing well in emerging markets, such as Brazil, China, and India. Overall, Q1 global vehicle sales increased 3.6 percent. And General Motors increased its market share by 0.02 percent in Q1 to 11.4 percent.
General Motors isn't just focused on growth; it's also focused on cost reduction in Europe, which should help the bottom line. General Motors has strong exposure to Europe. For example, 17.6 percent of its 2012 revenue came from Europe.
It should also be noted that General Motors is on Goldman Sachs's Hedge Fund VIP List. The companies on this list have outperformed the market year-to-date as well as last year. It's a follow-the-smart-money approach for investors. However, this doesn't guarantee future results. Furthermore, analysts love the stock: 16 Buy, 3 Hold, 1 Sell.
Now let's get to some numbers. Below is a chart comparing basic fundamentals for General Motors, Ford Motor Co. (NYSE:F), and Toyota Motor Company (NYSE:TM).
| GM | F | TM | |
| Trailing P/E | 11.25 | 10.05 | 16.15 |
| Forward P/E | 7.54 | 8.93 | 12.08 |
| Profit Margin | 4.00% | 4.27% | 4.36% |
| ROE | 15.20% | 33.97% | 9.09% |
| Operating Cash Flow | 8.92B | 7.18B | 31.15B |
| Dividend Yield | N/A | 2.70% | 1.10% |
| Short Position | 7.50% | 2.00% | N/A |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong
General Motors has been trading right along with the industry over the past year, which is a good thing – a very good thing! However, General Motors doesn’t offer any yield whereas Ford yields 2.70 percent and Toyota yields 1.10 percent.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| GM | 12.27% | 13.91% | 52.74% | N/A |
| F | 14.27% | 16.09% | 49.06% | 36.01% |
| TM | 11.10% | 33.72% | 62.85% | 70.01% |
At $32.84, General Motors is trading above its averages.
| 50-Day SMA | 30.48 |
| 200-Day SMA | 28.15 |
E = Equity to Debt Ratio Is Strong
The debt-to-equity ratio for General Motors is stronger than the industry average of 0.80.
| Debt-To-Equity | Cash | Long-Term Debt | |
| GM | 0.48 | 24.31B | 18.42B |
| F | 5.99 | 24.18B | 107.60B |
| TM | 1.11 | 30.73B | 179.57B |
E = Earnings Have Been Inconsistent
Annual earnings have been inconsistent, but they have been on the right side of the line. Annual revenue has consistently improved, but the rate of growth has slowed.
| Fiscal Year | 2008 | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in millions | 0 | 0 | 135,592 | 150,276 | 152,256 |
| Diluted EPS ($) | NA | NA | 2.89 | 4.58 | 2.92 |
When we look at the last quarter on a year-over-year basis, we see declines in revenue and earnings.
| Quarter | Mar. 31, 2012 | Jun. 30, 2012 | Sep. 30, 2012 | Dec. 31, 2012 | Mar. 31, 2013 |
| Revenue ($) in millions | 37,759 | 37,600 | 37,600 | 39,300 | 36,884 |
| Diluted EPS ($) | 0.60 | 0.90 | 0.89 | 0.54 | 0.58 |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Support the Industry (for now)
Due to the Chinese/Japanese conflict over islands in the East China Sea, General Motors and Ford have gained market share in China. Chinese consumers are shying away from Toyota and Honda.
In a more overall sense, do you believe Europe is bottoming? Do you believe the American consumer is strengthening? Do you believe China is slowing? The answers to these three questions will give you your answer as to whether or not the auto industry will perform well over the next three to five years.
Conclusion
General Motors has potential to run higher, but since it looks more likely that Bernanke will unwind later this year, auto manufactures could become high risk. It would be wise to see how the broader market acts over the next few trading days prior to considering any positions in General Motors.
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