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3 Reasons to Buy GM Stock on a Dip

General Motors Company (NYSE:GM) has had a rough year thus far, with shares off about 4% vs. a flat S&P 500. Compare that with Japanese automakers Honda Motor Co Ltd (ADR) (NYSE:HMC) and Toyota Motor Corp (ADR) (NYSE:TM), which are both 5% in the black since Jan. 1.

3 Reasons to Buy GM Stock on a DipOne of the big reasons for the underperformance of GM stock has been the widely covered recall woes of the automaker. General Motors took another publicity hit this week, too, with news that deaths from faulty ignition switches have now hit 50 victims.

However, before you count out GM stock, remember that this is a company that went bankrupt in 2009 but still managed to stay relevant with American consumers and car buyers around the globe.

Here’s why the latest bad news can’t keep GM stock down.

Price Targets Still Attractive: Bears would point out that GM stock hasn’t exactly been in favor with Wall Street analysts, but they aren’t looking at the whole story. Take, for instance, a recent JPMorgan price cut on General Motors stock. Yes, JPM cut its target … but by one measly dollar, from $47 to $46, which still equates to a whopping 36% upside! And by the way, JPMorgan still has an “overweight” rating on GM stock. And to top it off, Barclays actually just increased its target. Clearly, Wall Street remains interested in buying GM.

Negativity Priced In: The GM recalls and related deaths are undoubtedly disturbing. However, investors have had plenty of time to accurately price that into General Motors stock. Consider that right now, GM trades for just 7.8 times forward earnings while the S&P 500 has a forward P/E of more than 17! Even more compelling is that competitor Ford Motor Company (NYSE:F) has a forward P/E of more than 9, and Japanese automakers Toyota and Honda trade for more than 10 times forward earnings. GM is the best bargain among major auto stocks, hands down.

Dividend Potential: The icing on the cake is that in addition to strong upside to share price and an attractive valuation, GM also is getting some of its dividend mojo back. GM reinstated its dividend in 2014, and now pays 30 cents quarterly — good for a yield of almost 3.6% at current pricing. And for those worried about General Motors’ dividend going away again, as it did back during the bankruptcy mess of 2009, have faith; GM is paying out roughly 45% of earnings in its dividends, leaving ample wiggle room and even potential for a dividend bump in 2015.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/general-motors-company-nyse-gm-stock/.

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