GM - General Motors

[Homestead31]

http://www.barrons.com/articles/gm-with-its-delectable-dividend-is-priced-to-buy-1474309542

 

Adam Jonas from morgan stanley, long time Tesla fan-boy and GM bear upgrades to overweight.

 

Sell side finally waking up to the fact that GM is a return of capital story, and there is no reason to think that auto sales with crater just because they appear to have peaked. 

[aalexa1225]

As this thread is now 118 pages long, can someone post their best full write up on why GM is a good investment?

 

I think we should try to focus on the big picture with these threads, rather than some of these haphazard comments I have seen.

 

AOA

[racemize]

As this thread is now 118 pages long, can someone post their best full write up on why GM is a good investment?

 

I think we should try to focus on the big picture with these threads, rather than some of these haphazard comments I have seen.

 

AOA

 

5x earnings, much lower breakeven point (10-11 m SAAR) so not expected to lose money on bottom of cycles.  5.5 billion buyback in the next 1.5 years.

[fareastwarriors]

http://fortune.com/cruise-automation-general-motors-driverless-cars/

 

Driven in the Valley: The Startup Founders Fueling GM’s Future

 

Cruise Automation sold to GM for $1 billion; now its founders are racing to bring a self-driving car to the masses.

[CorpRaider]

No more crappy cars!  Buick 3rd in consumer reports reliability rankings.  First time ever in the top 3 for an American brand, I believe.

[fareastwarriors]

Mary Barra Is Remaking GM's Culture—And The Company Itself

 

To keep pace in the race to reinvent transportation, the General Motors CEO is shaking up America's biggest car company.

 

 

https://www.fastcompany.com/3064064/most-innovative-companies/mary-barra-is-remaking-gms-culture-and-the-company-itself

[fareastwarriors]

No more crappy cars!  Buick 3rd in consumer reports reliability rankings.  First time ever in the top 3 for an American brand, I believe.

 

Buick cracks list of top 3 most reliable automakers, ending 35-year losing streak for American brands

http://www.cnbc.com/2016/10/24/american-automaker-breaks-35-year-losing-streak-for-domestic-brands.html

[Rainforesthiker]

GM Earnings More Than Double

 

http://www.wsj.com/articles/general-motors-third-quarter-earnings-more-than-double-1477395486?mod=yahoo_hs

 

[DTEJD1997]

hey all:

 

GM reports supposedly "good" earnings this AM and the stock promptly sinks!  What is going on?

 

The same thing with Chrysler...earnings are way, way up, stock is down!

 

I guess the auto industry gets no respect from Wall St.

[fareastwarriors]

Peak margins/peak volume/ >overproduction?

[BTShine]

Call me naive, uninformed, etc, etc, etc since I probably am on GM. 

 

That said, here I go....the problem with GM is that they don't seem to produce much free cash flow.  All of their cash flow from operations gets plowed back into the business and it doesn't seem like a business where the ROIC is that high (this is where I could be wrong).  That's what I think every time I check into the GM board on here. 

 

Ok, now everyone can either ignore me on this one, or tell me how wrong my perspective is. 

[bbarberayr]

I think the real problem in getting better valuations is everyone remembers the last cycle and how badly the auto makers got hit with the eventual bankruptcies.  The stocks were cheap last cycle too, so investors just want to get out ahead of the bad news this time and just selling.  Most investors know the rule of thumb to buy cyclicals when they are expensive and sell when they are cheap.  They don't realize the restructuring that has taken place, with GM saying they will be profitable at almost recession level auto sales.

 

The other thing is we just recovered to industry auto sales in the 17 million range.  While we probably don't go higher, we probably stay at this level for several years as the auto stock is rebuilt and people buy new cars for advanced technology and safety and eventually self-driving capabilities. 

[tombgrt]

Call me naive, uninformed, etc, etc, etc since I probably am on GM. 

 

That said, here I go....the problem with GM is that they don't seem to produce much free cash flow.  All of their cash flow from operations gets plowed back into the business and it doesn't seem like a business where the ROIC is that high (this is where I could be wrong).  That's what I think every time I check into the GM board on here. 

 

Ok, now everyone can either ignore me on this one, or tell me how wrong my perspective is. 

 

This. It's the same in the Fiat topic where people focus on the very low PE-multiple. Look at the complete cash flow picture including all liabilities and it is less attractive. I'm not saying these names aren't cheap, idk, but at least throw P/E out of your rationale. On a FCF basis it's probably still cheap however but given the cyclicality you get another variable to guess right.

[dyow]

This stock has been stuck around $30 since it came out of bankruptcy even though new car sales have done well yet no repricing because every year the market thinks sales have peaked.  This can basically go on forever.  Auto sales could be at 17mil until 2020 yet the stock could still trade at $30 on a lower PE bc every year the market will again think sales have peaked.  This stock will always be priced for next year's recession. 

 

Also, I looked at the thesis for this stock last year and I just came to the conclusion that there was nothing i could figure out here that the market doesn't already know.  The story for this investment is pretty well laid out.  To make money here you have to buy sit back and hope the market eventually gives GM a multiple closer to 10 instead of a measly 5.  It could happen but generally including "hope" as part of your thesis for buying is not good.

 

I think the best thing going for this stock are the buybacks and dividend.  Without the 5% yield this stock has no floor. 

 

[RadMan24]

Call me naive, uninformed, etc, etc, etc since I probably am on GM. 

 

That said, here I go....the problem with GM is that they don't seem to produce much free cash flow.  All of their cash flow from operations gets plowed back into the business and it doesn't seem like a business where the ROIC is that high (this is where I could be wrong).  That's what I think every time I check into the GM board on here. 

 

Ok, now everyone can either ignore me on this one, or tell me how wrong my perspective is. 

 

This. It's the same in the Fiat topic where people focus on the very low PE-multiple. Look at the complete cash flow picture including all liabilities and it is less attractive. I'm not saying these names aren't cheap, idk, but at least throw P/E out of your rationale. On a FCF basis it's probably still cheap however but given the cyclicality you get another variable to guess right.

 

Different look. Capex has been high to catch up with the underinvestment in the 2006-2010 years. This will pan off in 2019, near the time B warrants expire. Automotive cash flow has been near $12.5 billion. Pension comes out of operating cash flow, dampening that number to $10 billion, making it seem like FCF is not as high. The Pension costs are funded with debt, with 15+ year bonds. That liability is manageable and has higher rates on its side. Cash taxes are much lower than expensed, due to DTAs. Liabilities for ignition switch, Korean wages, and Takata airbags, along with Brexit costs are more than accounted for with GMs liquidity, and product lineup to continue strong sales. Revenues have continued to increase due to higher margins and retail sales volume, people are buying more Chevys and GMCs today than in years and the Chinese are buying Buicks hands over fist. 

 

It will probably take a recession for people to realize that having $20 billion in cash on the balance sheet was enough to survive a downturn. $20 billion is safe enough for Berkshire Hathaway, is it not safe number for GM as well? I never hear anyone discuss if reserving $20 billion in cash is a high enough margin of safety, with a security yielding 5% in a super low interest rate environment.

[RadMan24]

Mary Barra Is Remaking GM's Culture—And The Company Itself

 

To keep pace in the race to reinvent transportation, the General Motors CEO is shaking up America's biggest car company.

 

 

https://www.fastcompany.com/3064064/most-innovative-companies/mary-barra-is-remaking-gms-culture-and-the-company-itself

 

Thank you for sharing that, it was a fantastic read.

[Gregmal]

Call me naive, uninformed, etc, etc, etc since I probably am on GM. 

 

That said, here I go....the problem with GM is that they don't seem to produce much free cash flow.  All of their cash flow from operations gets plowed back into the business and it doesn't seem like a business where the ROIC is that high (this is where I could be wrong).  That's what I think every time I check into the GM board on here. 

 

Ok, now everyone can either ignore me on this one, or tell me how wrong my perspective is. 

 

This. It's the same in the Fiat topic where people focus on the very low PE-multiple. Look at the complete cash flow picture including all liabilities and it is less attractive. I'm not saying these names aren't cheap, idk, but at least throw P/E out of your rationale. On a FCF basis it's probably still cheap however but given the cyclicality you get another variable to guess right.

 

Different look. Capex has been high to catch up with the underinvestment in the 2006-2010 years. This will pan off in 2019, near the time B warrants expire. Automotive cash flow has been near $12.5 billion. Pension comes out of operating cash flow, dampening that number to $10 billion, making it seem like FCF is not as high. The Pension costs are funded with debt, with 15+ year bonds. That liability is manageable and has higher rates on its side. Cash taxes are much lower than expensed, due to DTAs. Liabilities for ignition switch, Korean wages, and Takata airbags, along with Brexit costs are more than accounted for with GMs liquidity, and product lineup to continue strong sales. Revenues have continued to increase due to higher margins and retail sales volume, people are buying more Chevys and GMCs today than in years and the Chinese are buying Buicks hands over fist. 

 

It will probably take a recession for people to realize that having $20 billion in cash on the balance sheet was enough to survive a downturn. $20 billion is safe enough for Berkshire Hathaway, is it not safe number for GM as well? I never hear anyone discuss if reserving $20 billion in cash is a high enough margin of safety, with a security yielding 5% in a super low interest rate environment.

 

I think this and the gentleman prior to your post pretty much hit the nail on the head. What IMO one looking to own this needs to come to terms with is that you need to buy this with a 5-10 year horizon if you're expecting an outsized return. In the meantime you are getting the 5%, along with a huge margin of safety and a world class CEO. Outside of that you basically just need to hope that somewhere down the line this gets a better multiple because outside of maybe a weak grounded takeover attempt, there's no catalyst in site.

 

Outside of this, its incredible how you look at whats hot right now; things like Uber and autonomous driving and GM, relative to its market cap, has meaningful investment in both areas. One could easily be another Paypal to Ebay circa early 2000's. There is a lot of long term upside and optionality here. The downside is limited, and current returns are basically the dividend+buyback

[cmlber]

In the meantime you are getting the 5%, along with a huge margin of safety and a world class CEO.

 

What about Mary Barra do you consider world class?

[Gregmal]

In the meantime you are getting the 5%, along with a huge margin of safety and a world class CEO.

 

What about Mary Barra do you consider world class?

 

It is my opinion that Barra did a phenomenal job handling the recall fiasco. Additionally, she has been proactive in regards to investments, such as Lyft+Cruze. She has internally promoted and encouraged innovation, and has been very shareholder friendly in terms of dividends and buybacks. The shares have not rewarded anyone, but she's doing one hell of a job. I think the re-emergence of Buick and current turnaround at Cadillac are further testament to that.

[cmlber]

In the meantime you are getting the 5%, along with a huge margin of safety and a world class CEO.

 

What about Mary Barra do you consider world class?

 

It is my opinion that Barra did a phenomenal job handling the recall fiasco. Additionally, she has been proactive in regards to investments, such as Lyft+Cruze. She has internally promoted and encouraged innovation, and has been very shareholder friendly in terms of dividends and buybacks. The shares have not rewarded anyone, but she's doing one hell of a job. I think the re-emergence of Buick and current turnaround at Cadillac are further testament to that.

 

I'll agree on the recall.  Being proactive with investments I think is open for debate.  They needed activists to pressure the company to do the buybacks.  And my personal favorite is refusing to even talk with Fiat about a merger that would create huge value because GM is "still merging with itself."  I own the stock FYI, but I don't own it because of the CEO. 

[Gregmal]

In the meantime you are getting the 5%, along with a huge margin of safety and a world class CEO.

 

What about Mary Barra do you consider world class?

 

It is my opinion that Barra did a phenomenal job handling the recall fiasco. Additionally, she has been proactive in regards to investments, such as Lyft+Cruze. She has internally promoted and encouraged innovation, and has been very shareholder friendly in terms of dividends and buybacks. The shares have not rewarded anyone, but she's doing one hell of a job. I think the re-emergence of Buick and current turnaround at Cadillac are further testament to that.

 

I'll agree on the recall.  Being proactive with investments I think is open for debate.  They needed activists to pressure the company to do the buybacks.  And my personal favorite is refusing to even talk with Fiat about a merger that would create huge value because GM is "still merging with itself."  I own the stock FYI, but I don't own it because of the CEO.

 

I've thought about the Fiat deal and am on the fence. I applaud her for focusing on GM though and not getting caught up in the circus going on at Fiat with Machionne. There probably is a deal there that benefits both companies, however GM doesn't really need it and Fiat most definitely does. Instead of letting it be a distraction, she's instead focused on improving margins, brand quality, and retail sales. All of which are currently looking better than ever.

[Phaceliacapital]

Circus ??

[fareastwarriors]

In the meantime you are getting the 5%, along with a huge margin of safety and a world class CEO.

 

What about Mary Barra do you consider world class?

 

It is my opinion that Barra did a phenomenal job handling the recall fiasco. Additionally, she has been proactive in regards to investments, such as Lyft+Cruze. She has internally promoted and encouraged innovation, and has been very shareholder friendly in terms of dividends and buybacks. The shares have not rewarded anyone, but she's doing one hell of a job. I think the re-emergence of Buick and current turnaround at Cadillac are further testament to that.

 

I'll agree on the recall.  Being proactive with investments I think is open for debate.  They needed activists to pressure the company to do the buybacks.  And my personal favorite is refusing to even talk with Fiat about a merger that would create huge value because GM is "still merging with itself."  I own the stock FYI, but I don't own it because of the CEO.

 

I've thought about the Fiat deal and am on the fence. I applaud her for focusing on GM though and not getting caught up in the circus going on at Fiat with Machionne. There probably is a deal there that benefits both companies, however GM doesn't really need it and Fiat most definitely does. Instead of letting it be a distraction, she's instead focused on improving margins, brand quality, and retail sales. All of which are currently looking better than ever.

 

Why does it make sense for GM-FCAU merger? I never got that... They are both strong in the U.S. already and they both sell lots of trucks and SUVs....

 

VW needs FCAU more than GM since VW has weak/little presence in the U.S and lack the trucks/SUV's .... What am I not getting?

 

 

[cmlber]

In the meantime you are getting the 5%, along with a huge margin of safety and a world class CEO.

 

What about Mary Barra do you consider world class?

 

It is my opinion that Barra did a phenomenal job handling the recall fiasco. Additionally, she has been proactive in regards to investments, such as Lyft+Cruze. She has internally promoted and encouraged innovation, and has been very shareholder friendly in terms of dividends and buybacks. The shares have not rewarded anyone, but she's doing one hell of a job. I think the re-emergence of Buick and current turnaround at Cadillac are further testament to that.

 

I'll agree on the recall.  Being proactive with investments I think is open for debate.  They needed activists to pressure the company to do the buybacks.  And my personal favorite is refusing to even talk with Fiat about a merger that would create huge value because GM is "still merging with itself."  I own the stock FYI, but I don't own it because of the CEO.

 

I've thought about the Fiat deal and am on the fence. I applaud her for focusing on GM though and not getting caught up in the circus going on at Fiat with Machionne. There probably is a deal there that benefits both companies, however GM doesn't really need it and Fiat most definitely does. Instead of letting it be a distraction, she's instead focused on improving margins, brand quality, and retail sales. All of which are currently looking better than ever.

 

"GM doesn't really need it" is horrible logic, but I think exactly what Barra has suggested.  The CEOs job is to maximize shareholder value.  What does "need" mean?  If it creates shareholder value, it creates shareholder value, that's all there is to it.  Sergio has said there could be $10 billion per year in synergies and the market cap of Fiat is $9 billion.  Even if he's way off, the synergies are so significant relative to the purchase price that you have to be a total idiot to not at least spend a few days engaging in conversation.  If after talks the price is too high then that's a legit excuse, but saying a 100 year old company is "busy merging with ourselves" is just plain dumb.

 

Putting the synergies aside, a "world class CEO" would be able to think a couple steps ahead and realize that a 15 million car / year producer would be at such a competitive advantage that other OEMs would have to start looking for deals to stay competitive.  It could create a wave of consolidations that makes the auto OEMs look like the airlines, much more consolidated and rational which could lead to higher multiples on substantially higher earnings. 

[merkhet]

cmlber beat me to it, but the reason for a possible merger is $10 billion of synergies that fall to EBIT. Largely the idea is that GM & FCA Group don't need to be separately developing their own 4 cylinder engines. Unless you're buying a Corvette, a Viper, etc. you probably don't care whose engine is in your car.

 

That being said, I think FCA might have been trying to smoke out Volkswagen. I posted something in the Fiat thread indicating that just prior to Volkswagen's DieselGate, Volkswagen was in the middle of putting together a bid for FCA.