Should Investors Buy Into General Motors' Turnaround?

General Motors' headquarters in Detroit. Photo credit: General Motors.

It's no secret that the automotive industry is rebounding and doing quite well. While General Motors (NYSE: GM  ) was granted a unique government bailout and bankruptcy filing, which allowed it to wipe tens of billions of debt off its balance sheet, the company still has plenty of road left on its turnaround story. However, after GM's 2009 bankruptcy, investors who were fooled once are hesitant to be fooled twice. With a forward P/E ratio of 7.3, the cheapest of all major automakers, and the company making smart moves, is it time to buy into its turnaround? Here are two things to consider.

Chevrolet sweep
One thing potential automotive investors must look at is a company's vehicle portfolio. If it can't produce vehicles that people see value in, the company's future is obviously bleak.

GM's redesigned Impala has been a success. Photo credit: General Motors.

By the end of 2016, General Motors will have redesigned, refreshed, or replaced 90% of its vehicle lineup -- a lineup that is the industry's oldest. More important than simply embarking on the company's most aggressive lineup refresh is making sure it's done right, and so far the signs are positive. Ford (NYSE: F  ) has reestablished itself in the passenger car segment globally, with the Focus being the globe's top-selling nameplate and the Fiesta the world's best-selling subcompact nameplate. Ford's popular Fusion is eating away at the Camry's market share in the U.S., and the Escape is proving that sport utility vehicles don't have to be gas guzzlers. General Motors hasn't had the recent success with its vehicles as its crosstown rival Ford. However, that might be about to change.

Over the summer, GM's Chevrolet Impala scored a 95 out of 100 with Consumer Reports and was the first domestic sedan to take the top-scoring spot since the magazine began awarding cars and light trucks numerical scores in 1992. Of all scores, it trails only the ultra-luxury Tesla Model S and the BMW 1 Series.

Silverado 1500 and Corvette Stingray took home awards. Photo credit: General Motors.

Just this week the all-new Chevrolet Corvette Stingray and Silverado 1500 were named the 2014 North American Car and Truck of the Year at the NAIAS show in Detroit -- it should be noted Ford's all-new 2015 F-150 was not included in the award process as it isn't in production.  However, plenty of competition was at the world's most important automotive show and it was the first time GM's Chevrolet brand swept the car and truck of the year awards.

One reason for investors to remain hopeful for GM's transforming portfolio is that Mary Barra has been named to succeed Dan Akerson as CEO. Barra is credited with much of the company's product turnaround as executive vice president of global product development.

If General Motors can continue to successfully redesign its vehicles, win back market share, and grow revenues, it should be a valuable investment. This will be especially true as it continues to shore up operations, consolidate vehicle platforms as Ford has done, and become more profitable.

In addition to GM continuing its aggressive vehicle portfolio refresh, the company is gearing up to return value to shareholders in other ways.

Dividend
Recently, the U.S. Treasury dumped the last of its ownership in the once-troubled automaker. That's enabled General Motors to declare a dividend payment for the first time in six years. Yesterday, GM's board of directors announced a quarterly dividend of $0.30 per share, which is a yield of 2.99% as of Tuesday's closing price. That's in the same line as Ford's recently increased dividend of $0.125 per share, a yield of 3.04% as of Tuesday's closing price. Both dividends are favorable compared to Japanese counterparts Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) , which offer yields of 1.06% and 1.29%, respectively.

GM has taken large strides to strengthen its balance sheet and believes that after 15 consecutive profitable quarters and substantial liquidity, it can sustain its reinstated dividend and grow it over time.

Bottom line
Is it time to buy into General Motors' turnaround? I think the company definitely warrants a spot on your watchlist. I personally bought into the turnaround story at $27, and I'm not selling yet because potential remains.

As an investor, one of my biggest worries will be about how General Motors pays into its massively underfunded pension plan. GM ended 2012 with a staggeringly underfunded pension to the tune of $27 billion. As interest rates rise, as they did in 2013, that figure will decrease. If GM makes progress this year on its underfunded pension status, then it will be one more reason to buy into the company's turnaround.

The car-buying secrets you must know
You don't know it yet, but you probably spent $1000s more than you should have on your vehicle. In fact, the auto industry can be such a dangerous place for consumers that our top auto experts are determined to even the playing field. That's why they created a a brand new free report on "The Car-Buying Secrets You Must Know." The advice inside could save you thousands of dollars on your next car, so be sure to read this report while it lasts. Your conscience, and your wallet, will thank you. Click here now for instant access.


Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 15, 2014, at 9:15 PM, AmericanFirst wrote:

    Let's see, GM has recently gone on the record bragging about GM's cash rich "Fortress Balance Sheet", Ackerson basically recently told the taxpayers in recent news conference to take a hike on the $10.5B loss on the GM Bailout and then GM announces a dividend to current stockholders. Has GM forgotten their FORTRESS BALANCE SHEET is primarily a result of a $50B taxpayer cash bailout, $30B fleecing of their bondholders and $45B in corp. tax benefits awarded GM per the GM Bailout.......................what arrogance!

  • Report this Comment On January 16, 2014, at 9:44 AM, dennypat38 wrote:

    What GM has forgotten is the 35 BILLION they took from BUSH ADM where is that money they OWE TAXPAYERS?

  • Report this Comment On January 16, 2014, at 7:36 PM, cmalek wrote:

    You neglected to mention that GM is losing big time to Ford in trucks.

  • Report this Comment On January 16, 2014, at 10:27 PM, jandjsfather wrote:

    Let's not get lured into this once dividend paying powerhouse that went belly-up, that ruined the pensions of its employees and became worthless to its thousands of share holders. Their autos in the last years weren't worth bragging about either. I'll never drive a GM vehicle after owning several for over three decades. I also agree with cmalek that Ford is the better buy.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2795772, ~/Articles/ArticleHandler.aspx, 12/20/2014 6:51:55 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement