GM: Transitioning From Being 'Government Motors' And Heading Higher

| About: General Motors (GM)

Earlier this year I penned an article and bought General Motors (NYSE:GM) which is slowing transitioning from being "Government Motors" and putting its huge taxpayer bailout behind it. It has been a good investment as the stock has increased about a third since that time.

The company delivered another extremely solid earnings report this morning. Despite its recent rise, the stock is still cheap and it still has good prospects going forward especially if Europe continues to recover.

Earning Results:

  • After adjusted items, earnings came in at 96 cents a share; two pennies a share above the consensus.
  • GM's operating earnings in North America jumped 27 percent.
  • In addition, the profit margin in North America jumped to 9.3 percent from 7.7 percent last year. It was the highest profit margin in its home region in two years. This is within shouting distance of the company's goal of 10% profit margins in North America.
  • Most importantly, losses in Europe fell by more than half to $214 million from a loss of $487 million last year. GM was able to squeeze out $400 million in costs and it boosted revenue year over year for the first time in two years. This confirms what Ford (NYSE:F) reported last week. Things in Europe are getting better which could be a significant catalyst for the company in 2014.
  • Finally, the company's South American profit jumped 79 percent in the quarter to $284 million.

4 reasons GM can go higher from $37 a share:

  1. Earnings and revenue growth is projected to accelerate significantly in 2014. Revenue gains should more than double to over 6% in 2014 and consensus earnings estimates call for a 35% Y/Y gain in FY2014.
  2. Given this accelerating growth, GM stock is cheap at less than 8x forward earnings.
  3. The company has now easily beat bottom line estimates for six of the last seven quarters. The stock also sports a five year projected PEG of under 1 (.62).
  4. General Motor's balance sheet continues to improve, operating cash flow is up more than 50% since the end of FY2010, and the stock sells for just a little over 5x operating cash flow.

Note: By the end of 2014, the government should have sold the remaining shares in General Motors which should be viewed positively by the market.

Disclosure: I am long GM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.