Love it or hate it, there's no doubt that Tesla (TSLA 0.01%) has had a memorable 2023 on Wall Street.
Shares of the EV maker have nearly doubled this year, up 94% through Dec. 6 even as its business performance disappointed as price cuts in the EV industry led to slowing sales growth and lower profits. That trend is expected to continue at least through the fourth quarter and is likely to impact the stock in 2024.
While the electric vehicle market has been challenging, Tesla shares have been buoyed this year by hopes for its artificial intelligence (AI) initiatives. The company has been developing full self-driving technology for years, and it's also building an autonomous robot, Optimus. Tesla is also expected to eventually build a fleet of robotaxis, specially designed driverless vehicles for a ride-hailing service.
However, Wall Street seems skeptical of both Tesla's long-term prospects and how it will meet the challenges in the EV market. The average analyst's one-year price target on Tesla stock is $245.89 -- just 2.7% above where it trades now. Even worse, only 14 out of 33 analysts covering the stock rate it as a buy, meaning a majority think investors can find better places to put their money.
Image source: Getty Images.
Wall Street's preferred auto stock for 2024
Though it might come as a surprise, one of the auto stocks Wall Street is most bullish on now is General Motors (GM 0.45%). The Chevrolet maker has long been a hated stock on Wall Street. Some investors remained skeptical of the legacy automaker after it needed a bailout from the government during the 2008-2009 financial crisis. The stock is trading in the neighborhood of the $33 price at which it returned to the public markets back in 2010 (following its stint in bankruptcy), showing that it has been dead money for 13 years, aside from its dividend payouts.
That's not an inspiring track record, but Wall Street thinks things could change for the Cadillac owner in 2024. The average analyst forecasts that GM's stock price will rise by 40% over the next year, and 14 of the 19 analysts who cover the stock rate it as a buy.
The bull case for GM in 2024
While GM's stock price may be more or less the same as it was 13 years ago, the business has grown substantially in that time, and it's as healthy as ever, generating record profits. That's one explanation for Wall Street's bullishness on General Motors. The stock is trading at a dirt-cheap price-to-earnings ratio of 4.6.
GM finally took advantage of that low valuation, pledging last week to buy back $10 billion worth of its stock, $6.5 billion of which it repurchased immediately. It also raised its quarterly dividend by 33% to $0.12 per share, giving it a yield of 1.5%.
The company also said it would focus on cost discipline after agreeing to higher wages and benefits in its new contract with the United Auto Workers. Management plans to better control spending at its Cruise AV division after its autonomous vehicles were pulled off the road following several accidents and a ban in California, and it expects to significantly improve its EV margins as it fixes problems with its Ultium EV battery platform. Its traditional gas-powered vehicle business continues to generate bumper profits and should benefit from slowing demand growth for EVs. Finally, if interest rates start to fall again in 2024 as some expect, that too would be a tailwind for GM.
However, the best reason to buy GM stock is the valuation, which remains exceptionally cheap even after its gains following the buyback announcement. From its current P/E ratio, GM stock could easily gain 50% or even double just based on multiple expansion, meaning earning a higher P/E from improving sentiment. The stock should move higher as buybacks impact profit per share, and the current low valuation also gives the company the opportunity to aggressively buy back stock or increase its dividend.
GM still needs to execute, but the stock's price tag and the company's history of delivering strong profits should give investors confidence heading into 2024.
Wall Street is right. Given their respective valuations and prospects next year, GM looks like a good bet to outperform Tesla in 2024.
