General Motors Company (GM) has had its shares of very public problems in the last year or two, including some high-profile recalls. However, the most recent GM earnings report shows a company back on track as sales remain robust and recall expenses remain under control.
Specifically, GM stock reported that its Q3 profits and revenue were both down about 1%, but handily topped expectations. That’s no mean feat considering GM earnings were suffering from $1.5 billion in recall expenses, and a very robust market in North America was the key reason for General Motors’ success.
This isn’t just good on the surface, but also very encouraging when you dive into the details.
General Motors Company earnings showed that GM enjoyed a record profit margin in the key North America market where it books about three-quarters of total sales.
Now, in full disclosure, I am long GM stock personally. I bought in this summer in the low $30s thanks to the prospect of a juicy dividend above 4%, data showing a strong vehicle market in the U.S. and general hopes that General Motors was a bargain getting its act together instead of a company on the wane.
These GM earnings have validated all those points. But don’t think that General Motors stock is getting away from the new money here. The automaker still boasts a forward price-to-earnings ratio in the single digits, as well as a 4%-plus yield. There’s a lot of value to be had still in GM stock, even after this pop, and investors can buy with confidence.
The biggest reason I say that is because auto sales in America continue to be on pace for an all-time high, and while there may be headlines about uncertainty in the economy, it certainly is not showing up in vehicle sales. GM stock and its peers Ford (F), Toyota Motor Corp. (TM), Fiat Chrysler Automobiles (FCAU) and Honda Motor Co. (HMC) all are seeing strength.
Furthermore, while there is talk of a slowdown in China, a company like General Motors remains well-positioned for success thanks to reliance on U.S. sales — and increasing margins on those sales to boot.
When you throw in the fact that recall drags are increasingly in the rear-view mirror, all in all it adds up to a big success for GM stock this quarter and hints of future success to come in 2016.
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 held a long position in GM stock. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
