General Motors Corporation (GM)

All the recalls that have been happening, have had an effect on the stock in general. With lowering costs happening now and possibly in the horizon for some time, that could be a catalyst for consumers to continue to buy cars or bigger cars, and GM would fit that model. There is a refresh to the car cycle as the average car is still 12-13 years old in the US.

There are 17 million units in the US in terms of vehicle sales. A large portion of their sales would be coming in China, but he understands that is slowing down. He thinks all large cap stocks will do well. However, there is better value elsewhere.

Automobile stocks and the component manufacturers tend to do well more into the spring, from March into May. This stock has a bit of a negative profile. There has been some strength from the October lows and has been a fairly reasonable trade. It can do well along with the market, but the longer-term trend is lower highs and lower lows. He would expect that to continue.

He has tended to stay away from the automotive business, because it is very cyclical and a huge consumer of capital. It is a very, very tough business to survive in. The car cycle still has some room to run, so he feels you could be here if you really want to be invested in the automotive sector.

(A Top Pick Feb 11/14. Down 5.93%.) This has been a tough year with all the recalls. It remains an incredibly cheap stock, trading at around 3X next year's EBITDA. Thinks the car sales in the US will hold up. Lower gas prices will help that. Carries an enormous amount of tax loss carry forward from its bankruptcy. He trades around this a lot using Short Puts.

Stock has been beaten up, so this is an attractive entry point. This is reflected in the valuations. Trading at 8.1X forward earnings. They have bungled some things, but you are seeing a strong pick up in growth. They are going towards more standardized footprints so they can produce multiple cars on the same chassis in different styles. Opel division in Europe has been a bit of a headwind, but their Cadillac is doing quite well in China.

(Top Pick Oct 09/13, Up 2.33%) Hated hearing about the recalls. It is a black mark on the company. Emerging market opportunities are tremendous and he is looking 3-5 years out. He is positive on this one. They are generating a log of free cash flow. Dividend probably won’t go higher next year. Fat dividend, low valuation.

It has been in a downward trend, underperforming the market and close to its 20 day moving average. Three technicals are going against you so not a buy. This is a period of seasonal weakness. They bottom around the end of October and then move higher through the end of the year. Auto makers are transitioning from one model to the other.

Thinks this is a good opportunity. Expect we will see the run rate for production go from 16.5 million units up to 18-18.5 million before the cycle ends. There is good opportunity in Europe. Comparing this to Ford (F-N) the fundamentals are similar with Ford having a little more exposure to Europe. GM has the overhang of recalls while Ford doesn’t. Expects that 3-4 years from now they will both have done reasonably well.

Tremendously attractive, low valuation and opportunity to move toward more global manufacturing. Headwind is the recalls. They have to move toward more of a quality mandate. Great sales in China. If it drops due to recalls, then it would be an even better buying opportunity. It just happens to be GM’s turn to have this issue.

(A Top Pick Aug 29/13. Up 0.32%.) Has traded around this one. He tends to move in and out of the stock using options. Thinks the recall issue will be relatively temporary. Likes the cash return possibility as we move into 2015-2016. There will be a bigger dividend and a big buy back. They are not going to pay back taxes for over a decade. Trading around 2X EBITDA, very cheap.

If he were to own a car company, he would probably gravitate towards Ford (F-N). The news on General Motors is in the paper every day. They have sort of set the stage for a perpetual high level of recalls because, from a reputation standpoint, the worst thing that could happen is to have another situation like they did with ignition switches.

(Market Call Minute) Not interested. US autos are almost back to their previous highs.

In spite of all the recalls, people are going into dealerships with their recalled cars, and end up buying or leasing new cars with no money down and low interest rates. Sales are booming. Valuation is quite cheap. Have potential earnings of $5 a share next year. 10X earnings is a fair valuation. Good exposure to world markets in China. Good dividend of 3.18%.

Has never owned car companies as they are very capital intensive. They have a habit of having huge recalls and losses. It’s a difficult market and a difficult business. There have been a number of years now of fairly strong car sales and it is a cyclical business.