Well, it would seem I’m off to a slow start in InvestorPlace’s Best Stocks for 2017 contest. As I’m writing this, my pick — General Motors Company (NYSE:GM) — in seventh place with a return of exactly zero for the year. That’s a poor showing for GM stock, given that the S&P 500 is up over 5% for the year while the current leader in this year’s contest — Adam Johnson’s pick Zynerba Pharmaceuticals Inc (NASDAQ:ZYNE) — is up a whopping 36%.
That’s OK. I’ve been here before. Around this time last year, I was in dead last place and down an embarrassing 70%. And yet I finished the year just fine, thank you very much.
I can’t promise that General Motors will mount an equally impressive comeback. But I can promise you this. It’s still very early in 2017, and a lot will happen between now and Dec. 31.
How GM Stock is Faring
So, why is GM’s engine sputtering? After all, American auto sales are near post-crisis highs. And 2016 was actually a record year.
Looking ahead, lower crude oil prices — and a new presidential administration that is friendlier to fossil fuels — promise to tilt General Motors’ sales mix towards its more profitable (yet far more gas-thirsty) light trucks and SUVs.
A rising tide lifts all boats, and General Motors revenues have been trending steeply higher for the past two years. Seriously, what is there not to like here?
Wall Street fears that today’s high auto sales are unsustainable, driven in part by low interest rates that encouraged irresponsible borrowing by consumers who have bitten off more than they can chew.
And there is certainly some truth to this. In 2016, a record number of U.S. vehicle trade-ins — nearly a third — had outstanding loans larger than the value of the car, meaning that the balance from the old car gets rolled into the loan for the new car. It’s not surprising that the kind of person that would tack auto debt on top of auto debt would also have a hard time paying the bills, and auto loan delinquencies are rising, particularly among subprime borrowers.