General Motors (GM)
Next on the list of top auto stocks is one that, just a few years ago, I would have never believed I would recommend: American auto giant General Motors (GM).
There’s a lot to like here. As I wrote in January, GM recently reinstated its dividend after a multi-year hiatus following the meltdown and Great Recession. The reinstatement of the GM dividend was the final plank in the company’s efforts to become a “normal” company again.
GM was snidely called “Government Motors” after years of controversial government bailouts and direct ownership, but as I wrote late last year, the government sold off its remaining GM stock, and General Motors is officially free of government ownership.
GM does not have the raw sex appeal of auto stocks like Tesla or even Daimler. But it is the world’s second-largest automaker after Japan’s Toyota (TM), and after its reorganization and product portfolio slimming, it’s a lean, formidable competitor.
Looking at GM stock, the story gets better. GM trades for just 7.5 times forward earnings and 0.37 times sales — numbers that make the cheap DDAIF stock look expensive by comparison. It also pays a healthy 3.3% dividend that I expect to rise in the years ahead.
Does GM still have its problems? Of course. The United Auto Workers were weakened by the bankruptcy, but not broken. GM still has large legacy pension liabilities to contend with, and if GM really becomes a powerhouse again, you can expect labor to do what it has always done and demand a disproportionate share of the spoils.
GM is also lagging rival Ford (F) in product innovation. Ford shocked the market with the introduction of an aluminum-bodied F-150 pickup truck in January. That aluminum body shaves several hundred pounds off the truck’s weight and offers better gas mileage.
Still, given the pent-up demand after years of sluggish auto sales, I would expect GM to enjoy a fantastic year in 2014, compared to other auto stocks. And don’t be surprised if GM follows Ford’s lead and offers an aluminum-bodied Chevy Silverado.