What then is in GM's favor? First, at its recent price of $50.32, General Motors has a yield of about 4%, more than double that of the U.S. stock market as a whole. As the world's largest automaker, GM is a relatively safe stock, with excellent company brand recognition and customer loyalty. It is unlikely to face bankruptcy in the foreseeable future. Price-to-book value is less than one (.97) and the trailing price-to-sales is only 0.15.
Although volume is down recently, GM's management intelligently kept vehicles rolling through the recent recession with abundant 0% financing, in the process perhaps helping to keep not just company sales, but our entire economy afloat.
In contrast to Schwab and Value Line, Standard and Poors gives GM mildly bullish technical and relative strength ratings. Besides auto and truck sales, much of GM's earnings derive from financial services and insurance, which remain profitable.
It is also transacting with Korea's Daewoo Motors to incorporate that company in its operations, giving it a better inventory of low cost, popular autos and an improved entry into the Korean vehicular market.
Typical of bottom fishing buy candidates, GM looks to still have an uncertain, rough time ahead, but appears on its way toward an eventual return to substantially increased earnings. The shareholder will likely need patience, though, as it is not at all certain that, with their drop in the 9/11 market climate, this company's shares have completely tested their lows. Indeed, the buyer of this stock should take into account the likelihood of nail-biting losses in share price before its intrinsic value buoys it to impressive total returns.
Following an agreement, in 10/01, to divest GM Hughes, with a sale to the EchoStar satellite company, a deal structured so that GM will now own 11% of the combined GM Hughes/EchoStar corporation, GM is a competitor in the potentially highly profitable digital, entertainment, information, communication services, and satellite networks industries. Its zero percent financing in 2001 did perhaps undercut its profits going forward but it also dramatically reduced its vehicular inventories, laying the foundation for more sales of its excellently engineered, cost-competitive autos and trucks (in which it has increasing worldwide exposure) over the next few years. Its several billion dollar cash infusion from the GMH divestiture will also improve its financial position.
All told, the EchoStar deal shares and cash, improved competitiveness of GM vehicles down-the-road (so to speak), and anticipated wider recognition of this giant company's strengths, are felt to offer the investor at today's stock prices a substantial discount.
Is GM a risk-free investment? Hardly. But its combined per share intrinsic value would seem, as Argus suggests, to be at least $60. This is considered to be a conservative calculation. The company's intrinsic value may be recognized as significantly much higher as its new satellite company involvement and promise are realized.
Argus Company (1/17/02) gives it a "Buy" recommendation. We agree.