A few years ago, it would have been unthinkable: General Motors
But that was then, and this is now. And now, just this past week, several big Wall Street names opened coverage on the General with solid buy ratings.
Sure, GM looks like a very different company, one that seems to have learned from its long list of past mistakes. But a buy? GM? Of all the companies you could invest in right now? Really?
Not to say I told you so, but ...
I'm hardly alone in being able to claim this, but I've been saying for a while that post-bankruptcy GM has become a very different animal from the company that we'd come to know and mostly not love. GM certainly made its share of blunders after emerging from its government-imposed restructuring, but with robust new management finally in place and a successful IPO in the rearview mirror, the "Government Motors" stigma may finally be starting to fade.
Consider what we've seen in recent months, and remember that we're talking about General Motors here:
Solid profits. Years of restructuring efforts left rival Ford
in a position to be very profitable once the economic disaster started to recede, and GM, with a little help from the Feds, has followed in the Blue Oval's footsteps. While the company's first-quarter profit left some scoffing -- how could the company not make a profit after all the government help? -- more recent results have established some real credibility, with the company about to post its first profitable year since 2004. (NYSE: F)
- Management with a clue. The company's CEO shuffle raised some eyebrows, but the executives one level down were a pleasant surprise. Leaders like CFO Chris Liddell (hired from Microsoft) and GM North America President Mark Reuss (promoted from within) have demonstrated in both words and deeds that they understand the sins of GM's past, and the steps needed to chart a better future. And for the most part, the company appears to be executing well, top to bottom.
Stronger products. GM's product pipeline is a couple of years behind Ford's world-beating renaissance, but early signs are strong. The much-hyped Chevy Volt actually lived up to expectations and first-year sales may well exceed GM's optimistic estimates. GM's once-vaunted design department, a key source of the company's strength during its heyday, began to reassert itself with cars like the daring Cadillac CTS coupe. Quality ratings on the company's newer models are growing ever-closer to those of industry leaders like Toyota
and Honda (NYSE: TM) . And buyers are seeing the improvements -- sales incentives are finally falling, and margins are up. (NYSE: HMC)
And yes, I do think the "Government Motors" stigma is starting to fade. It's fair to say that GM's now-former CEO Ed Whitacre blundered by declaring that the company had repaid the government in full earlier this year. But now that the IPO has put another big check in the government's pocket, and now that GM's viability and profitability seem to have been established, it's increasingly clear that it's only a matter of time before all of the bailout funds are repaid in full.
But why buy now?
OK, so GM's on the road to recovery, and things look pretty good -- especially by recent historical standards. But why buy now? Here's why: Because the story is still unfolding, and some of the good parts have yet to come:
- Product pipeline. GM's product-development budgets were cut to the bone, and in some cases beyond, during the company's death spiral. Many new-product programs, including critical models such as the next-generation pickups and full-size SUVs, have only gotten back on track in recent months.
- Economic recovery. Like other industrial giants such as International Paper and Dow Chemical, GM is a cyclical company, meaning that its stock will tend to rise and fall with economic cycles. With the economy finally showing some signs of strength, macro conditions should support a nice appreciation over the next couple of years, assuming the company continues to execute. (For what it's worth, I think all three of these companies are worth a closer look right now.)
- The stigma hasn't faded yet. While more and more people seem willing to consider GM's products, the company still has a lot of work to do. Even aside from the lingering bad taste left by the bailout, a couple of strong quarters isn't enough to overcome decades of peeling paint and cheap-feeling interiors. But it's getting better, and I believe it'll be very good across the board within a couple of years. That in turn should drive sales, profits, and the stock price nicely higher.
GM stock is obviously not ever going to be a 10-bagger. But from where I sit (and I bought some GM stock recently, so my money is where my virtual mouth is), and assuming the economic recovery continues, a 40% or 50% return over the next few years seems like a reasonable possibility, with relatively little downside risk from here. GM may or may not be the best stock for 2011, but the General might finally have become an investment that won't keep you up at night.
Want to stay on top of GM's turnaround? Add the company to My Watchlist, which will find all of the Fool's analysis on the General's ongoing return to glory.