General Motors Corporation (GM)

Car company businesses are doing fantastic, but none of the stocks are doing that well. This is really a situation of the time of the cycle. We are back up to 17.5-18 million annualized units in the US. The average vehicle age is not that young yet. A great company and is earning lots of money, but the concerns with all of these is that we are getting to a point in the cycle that if the Fed starts to raise rates, there won’t be that much growth going forward. Feels the parts companies are better buys.

Another example where we haven’t seen that big of a fall off in terms of operating metrics or auto sales in the US or globally. However, at the same time there is a fear that something bad is going to happen. A lot of these have been under pressure because people are feeling we are at the end of the cycle. There is a lot of volatility in these types of names, and there could be a better entry point.

(A Top Pick May 21/15. Down 10.89%.) Got stopped out last August around this price level. Very cheap at 5X forward earnings with a 9% growth rate and a dividend at 5%. However, it has not done very well. Expects the market is concerned about the auto market maturing. Also there is very anaemic looking growth globally.

Selling at 6X earnings. Prefers BMW (BMW-GR) which is a global luxury brand, and selling at only 8X earnings. It is on top of the technology and have the I-series coming out and have product that will be competing with Tesla.

(Market Call Minute.) This is a true cyclical, and you sell cyclicals when the PE is low, and buy them when the PE is high. Currently the PE is low, and the total auto sales is rolling over.

Has always shied away from the big manufacturers. Prefers to play this through Magna (MG-T). The big auto companies are not the kind of names he likes to be in. Very capital and labour intensive. Profit margins are really tough. (See Top Picks.)

Auto OEMs in general have a lot of attributes where you have to be a little more careful. It is a highly cyclical business. They have sales of 17 million units every year, which is being driven by easy financing conditions. Right now they are doing well, but keep in mind this is a cyclical risk. Longer-term there are structural issues. Look at what is happening to the electrification of the powertrain, which is a legitimate threat. It lowers barriers to entry for some OEMs.

General Motors (GM-N) or BMW (BMW-GR)? Thinks the sector is going to be solid. There is going to be an upturn in China this year, and they are the biggest buyers in the world. Both companies appeal to the Chinese. He likes the sector.

(Market Call Minute.) An absolute mystery to him why the stock isn’t doing better with record car sales and record truck sales in the US. A screaming buy at this price.

Probably one of the most hated stocks in America. They are selling cars and trucks at an unbelievable pace. Making money like crazy. Trading at an unbelievably low price/earnings ratio and enterprise value to earnings before taxes and interest. They got hit with ignition recall woes and losses that affected earnings. They are sort of past that now. The auto cycle is going to peak at some point, probably in 2017. This stock at $30 as an upside of 50% over the next 2 years. Dividend yield of 5.04%.

(A Top Pick Feb11/15. Down 19.77%.) Sold all his holdings. Had a nice run for short while and then kind of weakened. The company is still profitable, but we are really at peak auto right now. Doesn’t think there is any hope for these numbers to move for North America above 18.8 million.

Model price is 32% below the current price. GM is spinning off GE capital. Investors get to decide if they want Synchrony or GE. He thinks the valuation will go up substantially. 3.2% dividend.

(A Top Pick Jan 12/15. Down 15.7%.) The underlying performance has been phenomenal, but are we at peak car sales now? Still a well-run fabulous business, and the stock was never at a high price anyways. They raised the dividend again and bought back shares. Cash flow yield is very high.

OEMs in the auto sector are something he would stay clear of. Worries about the used vehicles that are going to flood the market during the next few years. 5 million is a pretty big number that may pressure new vehicle pricing, or at the very least, force OEMs to offer bigger incentives or discounts.

Prefers F-N. GM-N is not as well run. They are not managed as well.