August 10, 1996
General Motors (280 shares) (NYSE: GM)
TYPE: Foolish Four Dow Dividend stock
Phone: (212) 418-6270
Closing prices, August 9th, 1996: Bid $51 7/8, Ask $52
Trailing 12-month revenues: $169.2 billion
Trailing 12-month EPS: $5.97
Last quarter reported: June 1996 (FY: Dec)
Next quarter report date: October 17, 1996
Consensus EPS estimates for quarter: $0.66e vs. $0.42
Dividend yield: 3.08%
---->Trade: Buying 280 shares, August 12th-16th
When I sit down to write reports about Dow Dividend Approach switches, I tend to rely almost exclusively on the company's annual report.
"What?!" you ask. No press releases? No earnings estimates? No analyst reports?
You see, this is the mindless mechanical approach we use to beat the market (almost every year), often by a factor of two times. And so all I personally feel I have to know about one of our Foolish Four is just enough to make passing jokes in Fool Portfolio reports.
General Motors is another fine example, yet another gargantuan capitalistic enterprise that fits snugly in this hallowed tradition. So let's peek into its 1995 annual report.
The first thing we notice is the electric vehicle that dominates the glossy front cover. The contraption serves as a highlight example of Teamwork in Action, the leitmotif for the company's literature this year. We see the shiny red car surrounded by approximately 100 people, including one particular fellow (seated directly next to the car's right-hand sideview mirror) who bears a stunning resemblance to former president George Bush. Turning open the front leaf, we read on the next page that the "EV1" will come to market this fall from "the first major automaker in modern times to market specifically designed electric vehicles to the public." Should be an amusing year to follow GM.
Speaking of amusing -- just a few quick quips... I mean, questions. Regarding that last marketing line we read ("the first major automaker..." -- you gotta read that one again), were there any major automakers in antique times, that needed to be distinguished from modern ones? And can you picture (since I can't) how one might market vaguely designed electric vehicles?
Oops. OK, back to the biz. General Motors did sales of $168.8 billion last year, 9% ahead of 1994's $155.0 billion. Of that total, $152.6 billion (90%) was sales from General Motors itself, which moved 8.6 million "units" (units here being cars) off its production floors and onto the world's auto dealers' lots. "General Motors" also included huge subsidiaries like Hughes Electronics and EDS, both of which contributed in excess of $10 billion to the top line. And General Motors Acceptance Corporation (GMAC), GM's financing wing, made up another $11.7 billion (7%) of revenues, with the rest being a smattering of miscellany.
Of course, in June GM spun off EDS (the former GM class E stock), which had lost $209 million in the second quarter. This is somewhat akin to AT&T's planned divestiture of NCR; in other words, it's a good thing.
Overall net income for 1995 was $6.88 billion, making for earnings per share (EPS) of $7.21. Last year was the third consecutive year of profitability for our company, following EPS gains of $5.15 and $2.13 for 1994 and 1993, respectively. Updating the story, following a light first quarter this year and a divestiture of EDS in the second quarter, trailing EPS currently sit at $5.97.
OK, now to First Call on AOL, for consensus earnings estimates. EPS estimate for 1996 currently sits at $6.16, down a buck from last year. The 1997 numbers enjoy a current consensus of $7.51 per share.
Back to the annual report. And let's talk brands. GM car lines include Chevrolet, Geo, Pontiac, Oldsmobile, Buick, Cadillac, GMC, and Saturn. We now love these cars, all of them. Plus, we swear we've never seen a Ford or Chrysler contraption that much impressed us. And how about those Geo ads from a few years ago... you remember that TV advertising campaign. "GEEEE-oh-oh!" Oh, yeah. Also, "Pontiac strikes again!" And (keep in mind, this is all intended to be subliminal, so please remember that you're not even really reading this sentence), you need to go to GM's Web site (http://www.gm.com) and hear Liz Wentzel tell you, "You know, what we need to focus on... we have to listen to the voice of the customer. The customer is the most important part of this business."
Hughes Electronics includes everything from Delco auto electronics parts to the HS 702 line of commercial satellites to the wildly successful DirecTV, the "fastest growing new consumer electronics product introduction in history." We'll have more to say about DirecTV in the coming 12 months; it's a fascinating story. Finally, GMAC is the well-recognized automotive financing and leasing arm of the company, and includes an insurance group and mortgage group as well.
Anyway, we're talking here about yet another massively diversified Dow company... it's fun just looking over the operations of a company like GM. There aren't many like it.
THE STOCK AND DIVIDEND
The company pays a quarterly dividend of 40 cents. Annualized, that's $1.60, making for a dividend yield of 3.1%. That's enough to place it squarely in our Dow Dividend approach, which you can read more about in our Fool's School (it's the Sixth Step of our 13 Steps to Investing Foolishly). In fact, with a closing price of $51 7/8 on Friday, GM is in the coveted #2 position among the Foolish Four, meaning that we are loading up with a double share of this stallion's stock. Consequently, next week we will be purchasing almost $15,000 worth, the single largest purchase of any stock in the history of The Fool Portfolio. We feel very good about doing so, in fact. And if any of youse don't like GM, we'll let our boys in Detroit know about you.
Performance for these shares over the past 12 months has been below market average, kicking between $43 and $58, and ultimately up 10%. (The S&P 500 over that period returned 19.2%.) I'm reminded here of a certain other General, General Electric, which returned 21% in the year before it entered the Dow fold and then brought us double that (45%) in the year that we held it. If General Motors manages to double the market, or double its previous year's lagging return, that performance of 20% or greater would make us very happy Fools.
--David Gardner, Fool HQ