General Motors Corporation (GM)

Have reinstated their dividend since buying out the US government. Cleaned up a lot of their legacy labour and health problems as a result of their bankruptcy. Selling their cars like crazy. Most of the forecasts are that we are going to have a record 2014/2015 as we replace a lot of very old vehicles. Trading at 10X forward earnings. Yield of 3.26%, which he expects will go up. $45 in 12 months seems reasonable to him.

Auto industry has made a pretty strong comeback over the last little while. If you see more consistent GDP growth in the US then you will see good growth in GM. Prefers Ford because of products and because they didn’t need help in 2008.

Cleaned up its act a lot. This is the seasonal time for them. There was an ascending triangle late last year and now we are entering the seasonal period.

CEO will be fine. Auto sales were slow in Dec. and Jan. in the US, but it was because of weather. Stock was soft because of announcement of incentives, but now we learned it is normal for this time of year. Their unfunded pension liability has decreased as markets have recovered. 7 times earnings and will generate a lot of cash.

Model price is $43.65, a 10% premium to the closing price of $39.90. There are other parts of the auto market that are attractive. Parts look a lot more attractive than the producers. However, you should still do well.

(Market Call Minute) Likes Ford better.

Had all kinds of troubles in 2007-2008, but have cut back on the number of models they had. Global economies are going to improve and consumer discretionary stocks are going to do very well. Likes the auto area.

(This was his Top Pick on Oct 9/13 on Market Call Tonight.) Just as cheap as it was then. Trading at only 8.5X forward earnings and are going to grow their earnings at 30% for 2014. Swimming in cash and there is a possibility of starting a dividend and a share buyback. Also, sees a big demand for cars going forward. Stock should be worth $50.

Analysts don’t know where the stock is going. If support broke that would tell you there were problems. You are risking 10% down for 30% up. But if it breaks resistance you have to manage your risk. There is a risk of a correction in the industry at the end of the next quarter.

(Market Call Minute.) Liked their earnings. The age of the fleet in the US is still very old and car sales are accelerating.

2014 looks pretty good because you are seeing the annualized light auto sales up in the 15-16 million range, which is back to where we were pre-crisis. Gasoline prices are dropping in the US. This could well continue to do pretty well and coming through next year, could continue to make new highs.

He has Ford and another in the Top Picks. No issue with GM. It is attractively valued. Cars average 12 years old in the US.

It is only back to the area where it went public and is still relatively cheap. Although we are not early in the recovery cycle, because of the replacement cycle in autos you are going to look at a couple of years of 15,000,000 plus in auto production in the US. Can see $48 in 12 months.

It is rare for him to buy a company with no dividend. Car fleet in US is old. Low interest rates creates demand. Have attractive brands. Valuation is low at 7-8 times earnings. Generating a lot of free cash flow. Warren Buffet is in it. Thinks they will do a big buy back of shares and start a dividend as soon as the government is out of the picture.

(Top Pick Feb 21/13, Up 35.90%) The whole space has been driven by North American markets. Lot of positive momentum going on. New management team is laser focused. They are making cars that people want to buy right now. She has been trimming as the stock has come up but there is good momentum and the valuation is reasonable.