General Motors Company (GM) Stock Won’t Hit $50 Any Time Soon

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General Motors Company (NYSE:GM) stock has been getting a lot of Wall Street love lately, even as the company begins to show renewed growth in key segments resulting in GM stock looking increasingly undervalued. GM stock now boasts nine Buy and 13 Hold ratings on The Street, compared to just one Sell rating. The shares are now up 18.6% over the past 12 months, handily outperforming those by close peer Ford Motor Company (NYSE:F) with a -13.4% return.

General Motors Company (GM) Stock Won't Hit $50 Any Time Soon

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However, one Wall Street pundit, Adam Jonas of Morgan Stanley, is particularly bullish about GM. Jonas resumed coverage of GM stock with a resounding Overweight rating and a $50 price target for a bull scenario, which Jonas says could happen soon.

That’s 42% upside for the shares going by the current price of $35.19. Earlier in the year, Jonas had assigned a seemingly unlikely $60 PT on the shares on prospects of a possible spinoff of some of its key assets, though that’s off the table for now.

GM Is Both a Value and Growth Stock

Adam Jonas is the head of global auto and shared mobility research at Morgan Stanley. His latest bullish thesis hinges on the premise that GM has several key assets that are of strategic value to other companies that might want to enter the global mobility race. Jonas is convinced that these assets will make investors start viewing GM differently sooner rather than later.

Outspoken hedge fund manager David Einhorn is the guy who famously won a court battle against Apple Inc. (NASDAQ:AAPL) four years ago that prevented the company from limiting its ability to issue preferred stock. Einhorn was at it again, this time with GM where he was pushing to split GM stock into separate growth and value trackers in a bid to unlock shareholder value. This time around, though, Einhorn suffered a bruising defeat after GM shareholders easily brushed off his proposal, with 91% of voters going against the split.

To be fair, Einhorn’s proposal looked like a long shot from the outset. There was no way GM was going to let go of its cash cushion and risk damaging its credit rating, especially now that interest rates are on an upward trajectory.

That might be too bad for investors who share Jonas’ sentiments about GM stock. Investors everywhere seem to agree that GM stock is substantially undervalued. What they cannot seem to agree on is how to assign a fair value to a company with so many cyclical concerns about its core business. GM shareholders are actually split between the growth and value camps because General Motors stock shares traits from both families.

The growth camp looks at the potential in GM’s leadership, in EVs and shared mobility, while the value camp is of course excited about the fat dividend and the fact that this is an American icon; a company with real staying power that’s likely to be around for decades to come.

Blue Sky Thinking by Jonas?

Unfortunately for investors who are thinking along Jonas’ lines, nothing short of a giant spinoff would truly create substantial shareholder value. The market could very well be grossly undervaluing some of GM’s assets, including its electrification drive. But, study after study has shown that the value of such assets tends to remain unrealized and is only fully unlocked by spinning them off.

GM’s combined sales for the Chevrolet Volt and the Chevy Bolt of 18,524 through the first six months of the year are second only to Tesla Inc’s (NASDAQ:TSLA) combined sales of 20,137 for the Model S and Model X. The comparison could, however, be a little skewed because Chevrolet Volt is a plug-in hybrid electric vehicle (PHEV) whereas Tesla’s models are pure EVs.

Considering that GM’s market cap of $52.7 billion is just a shade above Tesla’s $51.9 billion, we can surmise that investors have assigned Tesla such a rich valuation based primarily on expected future sales.

With about 400K Model 3 pre-orders on the books already, Tesla shareholders will feel at least partly justified about the stratospheric valuation of TSLA shares. I think the only way GM investors will start viewing the company a whole lot differently would be if the company came up with something groundbreaking, maybe with a cult following like Model 3.

Currently, the Chevy Bolt does not come anywhere near that, though GM’s deal with Lyft gives it a nice push into another promising market — shared mobility. GM could conceivably put its autonomous driving tech into Lyft fleets or sell it elsewhere, and maybe that’s what Jonas is talking about here. Although, EVs and shared mobility might not truly take off until after 2022, when EVs will finally meet gasoline autos on price parity.

Let’s not get ahead of ourselves, though. GM stock hitting $50 is not happening any time soon, at least not in the next 12 months. Two to three years looks like a safer bet.

As of this writing, Brian Wu did not hold a position in any of the aforementioned securities. 


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/general-motors-company-gm-stock-wont-hit-50-any-time-soon/.

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