General Motors Corporation (GM-N)

Not asset light. High liabilities. Low margins. Better options for investors out there. High debt levels. Not a great business. Not founder led or owned. 

Autos are mired in the UAW strike now. Past strikes tend to be a good time to buy shares, though. He prefers GM over Ford for its higher margins, and its EV program competes well against Ford, though Tesla is the winner in EVs (surprises him). Ford and GM are trading at a reasonable multiple, but Tesla's is much higher, which gives him pause.

(A Top Pick Oct 06/22, Down 12%)

The UAW strike is impacted all carmakers. Take a 3-10-year outlook and see the effect of EVs, a mammoth transformation in the car industry. Some say GM is a value trap, and that's possible. But he sees the upside being large. The downside is that it trades under 5x enterprise value to EBITDA.

Was trading at 8x and their beat earnings, but shares still went down. The market feels that GM won't transition to EVs without big sacrifices. But GM has a lot of cash flow and is a dominant brand name. They will transition to EVs. Now, there's a car glut, even in EVs. Still owns it, but has disappointed.

Ups and downs. Meeting most of its objectives on production, but a lot of the meaningful objectives are a ways out. Very modest 4.5x expected earnings. Downside on valuation is quite limited. Upside is we move back to previous volumes, though probably not tomorrow. Margins are higher than Ford.

Has been cheap for 20 years, and can't get out of its own way. PE around 5-6x. Never any growth rate. Can trade it. If you want something exciting on PEG, buy TSLA when it's on its back.

Wells Fargo projects that a strike would cost GM $2.7 billion and Ford $2.4 billion of adjusted EBIT a month. That said, he's not that worried and is not a risk to sell the carmakers. A strike is a one-off event, and the stock market cares only about the future. Also, Biden won't let a strike drag on; cars are a critical industry. Third, these stocks have already come down to absorb a stock. That said, if the strike leads to much higher wages, that would hurt these stocks. Don't rush in to buy these stocks.

There is a transition to EV's going on and GM is starting to get into this. However it is hard to be nimble when it is such a large company. The internal combustion engine market will continue with most cars still belonging to this category. He is not buying at these levels but is watching.

Downside of EV trend is that for traditional car makers, all the cash derived from selling traditional vehicles has to go right back into the EV side. Avoid the sector like the plague. Instead, look for component parts like chips and sensors.

He is not optimistic about the space. There is a slowdown in the auto sector and you have to weigh the used car markets coming down and increasing costs.

Legacy car companies still have valuable assets. 
Does not own shares.
Rebound in travel will help business.
Unsure on future of business.
EV deal with Tesla positive. 

EV sales are up 365% YOY, but mostly from the Chevy Bolts. Battery supply chain issues hamper sales of other EVs. Great PE.

Recent deal with Tesla a wise move for long term partnership in electric vehicle industry.
Good long term prospects for the business.
Very high demand for products.

At the time, he considered GM defensive and didn't expect a downturn in autos because inventories were so low at the time. GM has done well this year, beating expecations and trading at 6.5x forward PE. It's dragging its heels and expects growth in the future, namely in EV's. He's sticking with it.