General Motors Headquarters in Detroit. Photo Credit: General Motors Company.
It's been an excellent year for General Motors (GM 4.45%) and cross-town rival Ford (F 2.19%). Both are reaping profits not seen in a decade, and sales continue to increase as the U.S. automotive market rebounds -- recently topping a Seasonally Adjusted Annual Rate of 16.1 million for the first time since 2007. Today, GM is trading 2% lower on news that Canadian and Ontario governments will be unloading 30-million GM common shares. Is this a bad sign, or a better entry point?
Details
Today, the Canadian and Ontario governments, which acquired shares in General Motors during its 2009 bailout, unloaded roughly 25% of their common shares. Unloading the 30 million at the $37 price mark puts the value at about $1.11 billion. When the deal closes on Sept 16, it will leave the governments holding a little over 110-million GM common shares, and 16.1-million preferred shares.
Finance Minister Jim Flaherty said in a statement, according to Reuters:
As we said from the start, our investment in GM was always meant to be temporary as we worked to maximize the return to Canadian taxpayers. The Government of Canada is committed to exiting from ownership of GM as quickly as feasible, while maximizing the return for Canadian taxpayers, as we demonstrated today.
Back in the homeland, in December, the U.S. Treasury said it would sell its entire stake in GM over the next 15 months. Just recently, it sold an additional $811 million worth of GM common stock in July -- leaving roughly 186-million shares left. With both governments having hundreds of millions of shares left to sell off, it could provide some downward pressure on the stock price; but that isn't necessarily a bad thing.
Time to get in?
This could actually provide a nice entry point for investors trying to play GM's rebound. Consider that GM already trades at a cheaper forward price-to-earnings ratio of 6.5, compared to Ford at 9.2, and Toyota (TM 1.99%) at 13.1.
GM's Cadillac CTS. Photo Credit: General Motors
There are quite a few positive catalysts going forward for GM and its investors. First consider that its most profitable models, the Silverado and Sierra, are up 25% and 24%, respectively, in sales this year. As construction improves, and more people begin to replace vehicles, GM will continue to pull in big profits from the full-size pickup segment.
Another highly profitable segment is luxury vehicles. GM's Cadillac division started the year off with its most-improved sales rate since 1976, and has continued, for a year-to-date increase of 31.5%. On top of that, GM also holds a very strong market position in China, the world's largest and fastest-growing automotive market. Also, by 2015, GM expects to be breaking even, or turning a profit in Europe, reversing billions in lost bottom-line profit -- a huge positive catalyst for earnings.
While GM remains years behind rival Ford in operating costs, consolidation of platforms, and margins in the U.S., it's making real strides to improve its profitability. As it continues to improve financially, it may receive investment-grade ratings from credit agencies sooner rather than later, as Ford has already done, giving the company -- and stock price -- yet another potential catalyst. Although most disagree with how GM took a taxpayer-funded bailout, while rival Ford did not, that doesn't take away from the fact that it remains a very intriguing investment opportunity right now.
