“Bin Laden is dead and General Motors (NYSE:GM) is alive” was a key campaign message in 2012. Eight years later, former Vice President Joe Biden has again put GM, and its union workforce, at the center of his rhetoric.
The 2009 bailout is mentioned regularly. Biden announced his economic plan in front of a former GM plant. His “Buy American” plan could assure a steady flow of government contracts. The relationship seems close. Biden seems to know all about the new Corvette. But is this something you can invest in?
GM opens for trade Oct. 8 at about $31.60 a share, a market cap of $45.2 billion, after 2019 sales of $137 billion. The June quarter was a disaster, but analysts now expect sales of $37 billion in the third quarter report Nov. 5, and net income of $1.35 a share.
Is GM Stock Cheap or Dead?
GM stock looks cheap, but rival Tesla (NASDAQ:TSLA) has left it for dead, because GM looks miles behind on electric cars.
But Tesla is now worth 9x more than GM, $385 billion, despite having less than one-fifth its sales. Analysts see Tesla dominating the new supply chains of electrics and are buying its story of cars being products of technology, not manufacturing.
Biden’s policy would support GM’s efforts to compete, with investments in charging stations, tax credits, and new fuel economy standards. Such policies could give GM the time and money needed to bring its electrics to market, retooling factories and rebuilding supply chains.
If you believe that, and political analysts are skeptical, then GM stock is a very cheap stock. Right now the third quarter looks good, with sales down just 10%, mainly due to short inventory. Despite all the talk about electrics, people are still buying GM pick-ups. Leaner inventories should also mean more profitable sales.
Facing Tech Future
The old GM was a manufacturing and finance company. The new GM will be a manufacturing and technology company. The company expects billions of dollars in profit from defense contracts. That’s money it can put into its $2.3 billion battery plant in Lordstown, Ohio, being built with South Korea’s LG.
Meanwhile, GM continues to move away from finance. It will get $2.5 billion selling its credit card unit to Goldman Sachs (NYSE:GS). Goldman also says it will make GM’s credit card an “e-commerce portal,” handling financing on car purchases. Moving big credit decisions and payments online, as companies like Repay Holdings (NASDAQ:RPAY) already do, could accelerate car purchases.
Finally there’s the on-again, off-again relationship with Nikola (NASDAQ:NKLA). GM announced its plan to take equity and make Nikola trucks last month. Now Nikola and its founder are surrounded by charges of fraud. The two companies are negotiating, but it could result in GM getting more control over both the design and manufacturing at the truck company, which still carries a market cap of almost $9 billion.
The Bottom Line on GM Stock
GM stock has been hammered in 2020. The dividend is gone, the shares are down 16%. Tesla has blown past it.
But there’s still value in GM. Politicians don’t want it to go away. They have the means to keep it in the game against Tesla. Defense contracts, purchase incentives, and “buy American” plans for batteries and assembly plants may get GM through its present difficulties.
If they can, there’s no reason why GM stock should still be selling for 0.25x sales while Tesla sells for 20x. That ratio should change in GM’s favor.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.