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?
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.
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.
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?
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.
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.
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’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;
Here to cut the crap and get at the good stuff.
Thanks for Reading.