Is GM's Stock an Opportunity?
General Motors (NYS: GM) is at something of a crossroads. On the one hand, GM has come a long way since the bad old days: It has minimal debt, more than $30 billion in cash, and a rapidly improving product line.
Yet big problems remain. Many of its vehicles still lag competitors. It's burning huge sums in Europe. Its margins are dwarfed by those of its biggest regional rivals -- Ford (NYS: F) in the U.S., Volkswagen (NASDAQOTH: VLKAY) in China.
Is GM's stock a buy, or something to avoid? I created a premium report on GM to help investors understand if GM is likely to follow Ford and return to glory -- or crash and burn again under the weight of its long-standing problems.
Following is an excerpt from the report, laying out GM's opportunity. We hope you enjoy it.
There is a strong case to be made that General Motors' stock is undervalued. Since taking over in 2010, CEO Dan Akerson has put GM on a long-term course that should -- if all goes well -- lead it to a sustainable position of leadership in the global auto industry.
GM today is already a solidly profitable global automaker with a leading position and an increasingly competitive product line. But the company's stock is currently trading at a price below its historical valuation -- and well below the valuation of its largest competitor, Toyota.
GM has shown steady progress since its emergence from bankruptcy in 2009, with 10 consecutive profitable quarters through the second quarter of 2012, and a net profit of $7.6 billion in 2011. Akerson and his team continue to work to improve GM's margins, and given favorable economic conditions, profits are likely to rise significantly in coming years.
Perhaps most importantly, GM's product portfolio -- long filled with also-rans -- is improving rapidly, and the company has already reached parity with key competitors in several market segments. Recent models like the Chevrolet Cruze and Cadillac ATS compete well with Japanese, Korean, and German rivals. GM is still in the process of revamping its global product line, with important introductions -- all-new pickup trucks, for instance -- due to arrive over the next several quarters. As those products are rolled out, GM's sales, margins, and overall competitive standing should continue to improve.
But much work remains to be done. In August of 2011, GM senior management announced a long-range plan to streamline and simplify GM's global product offerings, much as Ford has done with its "One Ford" plan. Under the plan, by 2018, GM will be building 90% of its vehicles -- total, around the world -- on just 14 "core architectures," or platforms, down from about 30 today.
The benefits from such a consolidation will be extremely significant. Over the last few years, Ford has demonstrated that such an approach leads to better, more competitive vehicles, because with fewer core architectures, more resources can be devoted to the development of each. This in turn leads to both better economies of scale and the ability to increase asking prices, both of which will improve margins. That leaves more money to develop the next generation of vehicles, and so on: a virtuous circle.
This is exactly the medicine that GM has needed for a long time. GM has long been at a disadvantage to its principal global rivals when it comes to product quality, making up the difference with good marketing and its vast scale and reach. Improving GM's products and further reducing its costs, while preserving its traditional strengths, should make GM a formidable global contender over the long term.
That, in a nutshell, is the opportunity: The chance to buy a solidly profitable GM at a discount now, knowing that significant further improvements to its business are likely in coming years.
Looking for more guidance?
That was just a sample of The Motley Fool's new premium report on GM. If you're weighing whether the company is a buy or sell, the report is an essential resource for investors seeking more information on the company. Not only that, but the report comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. Just click here now to get started.
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