The best thing about a bear market is opportunity. While falling prices are troublesome to short-term investors, those who are in it for the long haul see declining share prices as a good way to snap up value stocks at unbeatable prices. With the Dow Jones Industrial Average taking a nosedive, it’s a good time to start doing some research and putting long term investments that could pay off in the future on your radar.
General Motors Company (GM) is one such opportunity that has been a tempting buy ever since the market started declining. GM stock has fallen nearly 15% so far this year, but the company has a bright future ahead of it.
In addition to management’s efforts to cement General Motors’ foothold in the auto industry, the firm’s financials suggest that 2016 could be a bumper year — making the market’s recent decline the perfect opportunity to do some bargain shopping in GM.
GM Stock Will Head Higher
General Motors’ management team raised its 2016 EPS guidance to between $5.25 and $5.75 on Jan. 13, a positive indicator for shareholders. Part of the reason for the increase is GM’s plans to ramp up its buyback program from $5 billion through 2016 to $9 billion through 2017.
As the company has already spent $3.5 billion on share repurchases, that leaves another $6.5 billion to conduct more buybacks. And why wouldn’t General Motors do that? Now is the perfect time for GM to buy back shares aggressively as the stock is trading well below what most analysts consider a fair value.
Earnings per share isn’t the only reason to consider GM stock in the long run- management is also planning to increase its quarterly dividend by 6% to 38 cents per share, providing value investors with a steady income stream.
General Motors Profitability to Soar
Outside of the fact that GM stock looks likely to rise once the market stabilizes, the company itself is a strong long-term investment. Not only has the firm started to zero in on its most profitable brands, but GM has also started closing factories in markets that have proven unsuccessful in order to reduce expenditures.
Now, with several 2016 vehicle models from some of General Motors’ most profitable makes — including the Chevy Silverado and GMC Sierra — getting a refresh, most are expecting to see a bump in sales which will translate into higher profits due to better margins.
2016 and Beyond
While there is a case to buy GM stock solely because of the company’s potential in the coming year, there is an even stronger narrative for General Motors’ success looking further into the future.
GM has been gearing up for a time when cars will drive themselves and owning a vehicle is no longer a priority for a large subsection of the market. Like rivals Ford Motor Company (F) and Volkswagen AG (ADR) (VLKAY), General Motors is working to develop autonomous vehicles; but the company’s recent $500 million investment in ride-sharing service Lyft as well as its buyout of assets from ride-hailing service Sidecar suggests that management is planning more than just a self-driving car.
General Motors appears to be positioning itself to remain a relevant player in the industry even when vehicle ownership has begun to wane. Many are predicting that self-driving cars will add to the growing number of people that prefer to use ride-sharing services rather than buying, maintaining and parking their own vehicles. Partnering with Lyft is likely to give the automaker a way to tap into that growing market segment give shareholders a reason to hang on to GM stock in the future.
By aligning itself with Lyft, General Motors is also able to gain some street-cred among the techie crowd in Silicon Valley. This is important when it comes to designing connected cars and developing autonomous driving features, because it will help the company recruit startup-worthy talent that may have otherwise been deterred by GM’s antiquated image as an established brand.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
