General Motors Corporation (GM)

In itself it is like the other car companies. It is tough. The US market at 17.2 million units/year is not growing. In fact, is falling a little bit. Globally 95 million are produced each year. The US is not that big a piece there.

He doesn’t own automotive stocks. From a valuation standpoint, GM looks really cheap, with a single digit multiple. It has suffered very much recently, as has the whole sector. Over time, the trend is reduced car demand with the increase in car sharing, high-speed trains and other public transport. Streets are way too busy. Millenials are not buying cars the way that previous generations have. This is a capital-intensive business. Even to move the fleet to electric motors requires many billions of dollars. It is too hard, and too expensive, for auto companies to keep up with world trends. There are better places for investors’ money.

Lot of buying last 2 years between $34-36. That support is not bad, and provides a good exit point. If it hits $36, don’t rationalize your holding. Bothers him that stock has done nothing except pay out a nice dividend. Margins are difficult. Not a short-term trade of less than 3 months. Long-term looks somewhat negative.

GM is not just a 1910 masher of auto parts. It has great technologies that are likely to put Tesla out of business. They will sell many more electric cars than Tesla and this part of GM is not being valued by investors. At $40 the stock trades at 7x earnings with a 3% yield. It is tremendously undervalued. He thinks it should go to $60. (Analysts' price target is $50.41)

(A Top Pick Jan 16/17, Up 7.30%) They had a good quarter but are caught up with other dividend paying stocks selling off. It is in the top 10% in terms of valuation. A good stable business.

Last year, the 3.5% dividend stayed the same, which is not a good thing. He doesn't like that car manufacturers are asset heavy, and unable to generate consistently growing cash flows. Once they get rid of the 2008-2009 pensions, it is stable, but free cash flows have not risen since 2014. You are getting into a conundrum of high competition/low list prices. They usually waste all their free cash flow on capital expenditures. He’s not a big fan of car companies.

Their strategy has been focused on getting out of Europe, and did that by selling Opel/Vauxhall at north of $2 billion. Reinvested those proceeds into share repurchases and into China, which has been a real winner for them. Believes they sell more cars in China than in the US. Also sold more electric cars in 2017 then Tesla. Valuation is still very reasonable. Dividend yield of 3.5%. (Analysts' price target is $48.)

These companies are old, but are not stupid. This company has $6 billion of positive cash flow this year. Compare that to Tesla which has $4 billion of negative cash flow. General Motors has the capacity, the intelligence and the engineering. The stock is trading at a ridiculous PE multiple of 7X. They are finally making money in all their markets, including Europe for the first time in 20 years. Dividend yield of 3.5%. (Analysts’ price target is $48.)

Has had a great run. His concern with the US automotive sector is that you are going to approach peak sales. He worries that ultimately you are going to see a lot of transition with respect to the OEMs, especially if you consider that other markets like China and some in continental Europe are trying to phase out combustible engine vehicles. China wants to completely phase them out by 2025. Also, NAFTA renegotiations are not good for this company.

The cheapest stock in the US trading at 5X earnings. Everybody believes we have hit Peak Car, and car sales are just going to continue to deteriorate from here. Meanwhile, Tesla has the Mojo. The company is buying back a lot of stock. The dividend is fantastic. Doesn’t think anyone knows what the long-term is going to be. He likes this for the dividend.

(A Top Pick March 2/16. Up 6.87%.) Thinks this still doesn’t get the respect it deserves. It is as profitable as can be. Pays a nice dividend. Has a big market share selling a lot of cars. Trading at a 5.7X P/E ratio. You are not taking a big risk with this.

He is not interested in auto stocks although they are discussing it. He would not buy this one, though, because he believes auto sales are plateauing in North America. The big growth in auto sales is in Europe where GM just sold their European operations. In downtown Toronto a lot of people are not planning on owning a car.