General Motors Company (GM) has seen its share price fall dramatically over the last year on concerns about demand and innovation, but now that GM stock is trading below $30, it could be a good buy for long-term investors.
Although auto stocks have fallen out of favor with the broader market, GM’s hefty dividend and promising investments make now an ideal time to buy shares.
At the moment, investors are shying away from auto stocks as a demand surge in the U.S. has caused many to question whether the industry has peaked. While this is certainly a concern, market fears may be overdone. Analysts at Piper Jaffray say that the auto market in the U.S. hasn’t been saturated just yet and that sales are likely to continue as demand plateaus rather than peaks.
GM Stock: Why Is It a Bargain?
Another major concern for GM stock is China. China is a huge market for General Motors, and economic weakness there has put a damper on the firm’s outlook. However, General Motors saw its China sales grow 17% in May and the figures are up 4.3% year-over-year.
While macroeconomic conditions in China are far from stable, some of the pressures keeping the population from purchasing new cars have begun to fade. Lower gas prices and more stability in the housing market have all contributed to renewed demand for new cars.
The Chinese government has been working to stimulate the economy over the last few years and in doing so, it has supported the auto industry. Some of Beijing’s policies, like more lenient credit policies and lower purchase taxes have helped lift sales over the last year. While these policies are likely to continue supporting sales through the coming year, it’s important to keep in mind that they may have inflated demand figures.
Innovation has been another worry for GM as autonomous and electric vehicles gain popularity. However, General Motors has made sound investments in its future — the company has developed its own line of electric cars and it appears to be working on its own autonomous driving features as well. This year, the company has made two strategic acquisitions, buying Cruise Automation and Lyft.
Cruise Automation is a startup that develops autonomous driving technology and GM has said it hopes to use the talent Cruise brings to the table in order to enhance its own Autonomous Vehicle Development Team.
The Lyft acquisition is a nod to the evolving ride-sharing market, where Uber has proven that there is a huge demand for that kind of service. This year, GM launched Maven; a car-sharing service that many believe will keep the automaker relevant, even if individual car-ownership begins to slide.
General Motors has proven itself to be a resilient company over the last few decades and the company’s efforts to change alongside the market are a good sign for the future.
GM stock’s dividend yield of 5.15% makes waiting out some turbulence in China and a possible lull in U.S. demand much more attractive as well. With a price-to-earnings ratio of just 4.43, GM stock looks relatively cheap, making now an ideal entry point for long-term investors.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.