Report Cards for Automakers – General Motors (GM)
First the good news: General Motors (GM) stock is very cheap right now: Its PEG ratio of 0.5 and the forward P/E of only 7 are the lowest in the sector. Add to that the second-highest dividend yield among automaker stocks – 3.6% — and GM stock is quick to grab your attention.
Now for the bad news: GM has issued recalls for nearly 14 million vehicles so far this year — and the recall parade is far from over. Federal regulators last week fined GM $35 million for delaying recalls of faulty ignition switches tied to at least 13 deaths. The company faces multiple federal investigations into the recall crisis and GM could still be on the hook for millions of dollars in civil penalties.
The greater risk to GM stock is whether the company is found to have known about the fatal ignition defects and failed to disclose them during the old GM’s bailout and bankruptcy. General Motors’ story will continue to evolve over the summer — and summer investigations in Washington tend to take on a life of their own.
In short, we don’t know what we don’t know about GM’s liability, making it a good idea to sit on the bench on the stock until we see a clearer bottom.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned stocks.