As I’m writing this, we still have a few weeks left in 2016, and I’m duking it out for first place in the Best Stocks for 2016 contest with Jason Moser. His pick — mortgage processor Ellie Mae Inc (NYSE:ELLI) — has a slight edge on mine — pipeline operator Energy Transfer Equity LP (NYSE:ETE). But it’s a close race, and anything can happen. So may the best stock win!
Nerve-wracking, “blood-in-the-streets” markets like those are the kinds of markets I live for. I lost clients in December and January, but frankly, I didn’t mind. Those who stuck with me ended up enjoying a fantastic year in 2016 when the market turned up again.
Well, a year later, things are vastly different. We’re entering the year with investors feeling downright euphoric … and that makes me nervous. I’m sitting on cash positions of 15%-20% in most of my stock portfolios.
But there is one pocket of the market that I still consider massively and unambiguously cheap — automakers. So even if this stock rally fizzles in 2017, I think it’s likely that the automakers finish the year with a respectable return.
So with no further ado, my pick for InvestorPlace’s Best Stocks for 2017 is General Motors Company (NYSE:GM).
The Case for GM Stock
I currently own General Motors in my Dividend Growth portfolio … which is something that I would have considered preposterous for most of my career. After all, for as long as I could remember, automakers were perpetually in and out of crisis, over-indebted and facing industry overcapacity and a militant, unionized workforce that took most of the profits.
Well, given that GM trades for 4 times trailing earnings and 7 times expected 2017 earnings, those are precisely the assumptions still baked into stock prices. GM is priced like a company with several structural problems facing a total collapse of profitability. But the reality is a lot different, and herein lies our opportunity.
Let’s start with debt. As of last quarter, GM stock had $79 billion in long-term debt and another $21 billion in unfunded pension liabilities. Offsetting that is about $22 billion in cash and marketable securities for a net debt of about $78 billion.
That might sound like a lot, but this is a company that has done $162 billion in sales over the trailing 12 months and $14 billion in profits. That’s a manageable amount of debt, even if sales moderate.