GM Rising. A Fresh Future?

Graphic, cover, GM rising.
Cover image; Cadillac, a strength for GM China.  Impala, the iconic American low-rider.

 

FEBRUARY 6, 2019.

GM.  Was it ever sexy? Maybe–but who was there to notice? GM’s phallic palace tower in downtown Detroit was sexy once so they say. Women now run that symbol of purely masculine dominance.  Things change.  GM itself perhaps?  Tesla’s sexy right–it’s electric for God’s sake. Elon Musk wasn’t even born yet when General Motors was great and firing on all cylinders. But wait.

In fact old dogs do learn new tricks, and design new trucks. That’s good, but not electric. Yet, in a truck and crossover world GM isn’t an old dog. Nor is CEO Mary Barra.

Trucks are not tricks and neither are corporate turnarounds. Things do change, under the right leadership. Belichick. And GM’s CEO and CFO look like the dynamic duo of change. Does a 20% share price move count? That was 20% in one month. Is that dynamic?  

 

detroit-1819179_1920
Detroit is a shrinking city.  Is GM a bright light? The high-paying assembly-line jobs of a once robust auto industry are gone, along with a massive chunk of the city’s longtime residents.

Should

you own GM?  Tariffs on steel don’t help, trade wars don’t help, Uber and Turo ride-sharing doesn’t help, Waymo and Lift autonomous vehicles won’t help, carbon emissions don’t help, shifting demographic and cultural attitudes don’t help, rising purchase prices don’t help, owning depreciating assets doesn’t help, sedans hardly help, grandpa brands seriously don’t help, the Chevy Volt didn’t help, GM’s trailing position in EVs doesn’t help, the growing viability of Chinese-made brands won’t help.  What does?  Mary Barra.

 

 

GM, the long-term performance picture.  The camera routinely lies, but charts do not.  The first questions investors should ask  is “does the stock beat it’s benchmark?”  Why compare?  Shouldering individual stock risk makes no sense unless your stock does out-perform the averages.  Below is the GM answer, minus reinvested dividends.

 

General Motors(GM)2-1-19
Chart, GM, 2-1-19, Life Time
GM’s long-term total returns(including dividend reinvestment) seems unworthy of your money. The current 3.92% dividend is bountiful, yet so are GM’s headwinds. However it’s dirt cheap at a ttm P/E of 6.59, a forward of 6.1, and a peg ratio of 0.46.

 

 

Any way you slice it General Motors savagely under-performs the $COMPX  and $SPX benchmarks over every period, until the last four months.  No additional charts are needed here as they all provide the exact same result.  GM total returns–including dividends–are provided above.

 

 

police-1714956_1920
A city that can’t catch a break. Detroit PD on the beat in a city strewn with abandoned homes and reeling from a shrinking tax base. The bank-engineered ’08-’09 financial crisis hit Detroit like a bomb. Residents simply “walked away.”  The results are broadly obvious today.  Vacant residential lots resemble a broken mouth.  And much like the damage left by the rioting during the “Long, hot summer of ’67,” that financial crisis damage will be obvious for decades to come. Detroit is the largest U.S. municipality  ever to declare bankruptcy.  Next came leaded water.

 

 

GM has suffered for years–both as a company and a stock.  The story has been the following.  If you want to create dead money, “invest” in GM.  It’s your grandpa’s stock, and car.  Hold on a minute.  GM has shifted leadership at the very top, hiring Mary  Barra as CEO and CFO Dhivya Suryadevara.

 

An aggressive cost-cutting and overall restructuring plan was put into place.  Five plants were slated for closure, along with plans to cut more than 8000 jobs, greater than half being white-collar.   The minute the plant closures and job cuts were announced the White House convulsed in ire.  Manufacturing jobs form the  center of the president’s MAGA theme.  Nonetheless…streamlining works.  What else works?

 

 

pickup-truck-2029550_1280
Pickups and crossovers–the cash cows. The king cab in particular is one of America’s prime vehicles of choice. No foreign auto maker, Japanese or German, can touch the popularity of domestic players. For now. For GM the king cab is king, providing the highest sale prices and best profit margins. The restructuring plan includes fewer costly sales promotions or cash incentives than in past years. It’s working.  GMs free cash target sits at 4 billion annually, and Q3, ’18 hit that, minue the 650 million used to pre-pay on delinquent pension obligations.

 

 

From it’s cylindrical Detroit tower at 300 Renaissance Center, Barra launched an assault on a formaldehyde-filled company.  For decades Detroit has struggled.  Surrounded by a struggling city, GM itself languished.  Dated brands and foreign players pushed it more deeply into irrelevance; losing market share, money, and appeal.  GM looked hopelessly passe’ next to Musk’s glittering visionary future assembling over at Tesla. 

 

General Motors(GM)2-1-19
chart-gm-2-1-68days-e1549270424585.png
Buying GM here seems foolish. This train left the station on January 3rd and currently resides 20.2% higher. Buying now would rank as classic chasing.

 

-Out-performance-

Is GM performing?  Over both the one and six month periods GM is radically out-performing it’s benchmarks; the S&P U.S. Consumer Discretionary, the S&P Global Consumer Discretionary, and the S&P 500 itself.  Over the past month GM beat the best of these three by greater than 50%(S&P Global 8.3%, GM 12.9%.).  Over the past six months the out-performance gap grows to greater than 200%(S&P 500 -4.4%, GM 4.58%.)

 

 

On October 31st GM posted a spectacular 49.4% EPS beat; $1.87 on a non-GAAP EPS estimate of $1.25.  GM grew adjusted EBIT by 25.0%y/y.  That’s income before interest and taxes.  GM grew diluted-adjusted EPS by 41.7%y/y.  

 

people, man, guy, city
Back to school. Retraining remains the hope of many adults left floundering by the savagery of a merciless economy. Spring morning in Detroit.

But

is GM a buy?  No, not here.  GM is a classic turnaround story, not a hyper-growth stock.  The 8000 job cuts are just beginning and the leadership team is moving those savings, 2.5b., directly to the bottom line.  Closing plants, reducing work force, and cutting sales promotions and cash incentives are providing dramatic results.  However, cost cutting can go only so far.  Winning back market share is tough, and slow work.

 

 

GM, Mary Barra
GM Board Chaimwoman and CEO Mary Barra. Working along with Dhivya Suryadevara, Chief Financial Officer, the pair are returning a rightfully proud organization back to competitive vibrancy. It’s working.  Ford better watch it’s back, and front.

 

 

GM’s leadership seems both incredibly capable and driven.  Their Q3 conference call was dazzling, with nearly all analysts showering the team with “congrats.”  Nonetheless, the auto business is highly competitive and in fundamental transition.  GM is trailing in that multi-faceted shift.  Electric and autonomous vehicles are the future form of the industry.  Again, GM leads in neither.

 

 

Legendary investor Peter Lynch would classify GM as a “turnaround” play.  As of 2-6-19 at $39.30, shares have moved greater than 20% in just over a month.  Buying now is known as “chasing.”

 

In the long-term GM remains in our view behind the curve, but moving and improving quickly.  For a trader, GM could prove interesting, on a pull-back.  But EV battery technology and production is challenging, while the recharging infrastructure nascent.  All negatively effect wider adoption rates.  And the AV? Both Av’s and the required sensor and data infrastructure are not even close to prime-time, and the race for leadership is fierce and only intensifying.  Think Waymo.

 

 

GM Q3, 2018 Earnings Press Release;

https://media.gm.com/content/Pages/news/emergency_news/2018/1031-earnings/_jcr_content/iconrow/textfile/file.res/General-Motors-Q3-2018-Earnings-Press-Release.pdf

Here to cut the crap and get at the good stuff.

Graphic, cover, Standing Tough now

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Additional resources:

Investopedia.com.  Seriously Wonderful.  Fact.
http://www.investopedia.com/
Charles Schwab.  In Our Opinion, the best broker going.
https://www.schwab.com/public/schwab/client_home
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