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We are down to the last two trading sessions of what has been a stellar year for equity investors in 2013. It is also time for pundits to give their predictions and forecasts for the New Year. Not wanting to be left out, I have my some of my own projections for 2014. In order to keep these articles short and readable, I will break up my 2014 predictions into a half dozen pieces in the coming week.

2014 Prediction #1 - General Motors (NYSE:GM) will hit $50 a share

There are several reasons why I think this is a highly likely event in the coming twelve months.

Government Exit:

The Federal government recently sold its remaining stake in General Motors that it has held since helping bailing out this American manufacturing icon during the financial crisis. It is one of the few TARP era investments the government & taxpayers actually took a loss on but it did help to stabilize the auto industry.

The exit of the government from the shares should have a couple of positive impacts on the company. First, it helps to remove the moniker "Government Motors" from the carmaker. This should help remove the remaining negative sentiment some consumers have on the carmaker for being part of a government bailout.

More importantly, it will remove government restrictions and interference on major company decisions. These would include compensation decisions, dealings with the UAW and how much support it throws to poor selling electric vehicles (EX, Volt).

Capital Allocation Improvements:

Another positive development the removal of the government as a shareholder should have for stockholders is that it should improve its capital allocation options. These would include initiating a dividend and buying back stock.

General Motors has almost $27B in cash on the balance sheet. There is already movement and speculation that activists will be pushing the company to use some for dividends and stock repurchases.

Strong Demand:

The domestic market is expected to post another strong year with over 16mm new vehicles sold in 2014. The average age of a car on the road is over 11 years (The highest ever), financing rates are historically low and economic/job growth is slowly improving. GM is also gaining market share recently in North America.

Things are starting to turn slowly in Europe. Car registrations on the continent have risen for three straight months year over year. GM won't make money in Europe in 2014 but it should lose significantly less than in 2013 as demand strengthens off depression levels and cost cutting efforts bear fruit.

China should continue to show considerable strength. American manufacturers could also continue to gain market share as tensions between China and Japan escalate. GM's Chinese sales were up over 10% this year to ~250,000 monthly vehicles through joint ventures.

Valuation:

The shares are cheap at under 9x forward earnings, under 6x operating cash flow and the stock sports a five year projected PEG of under 1 (.73). Earnings are expected to gain 35% year over year in FY2014 on better than 6% revenue growth.

It is easy to see why the stock has popped up on both Barron's and Merrill Lynch's top ten large cap picks in 2014. Given this, $50 a share seems like a very achievable goal for GM stock in 2014. That would be less than 25% above the current stock price, under 11x FY2014 earnings and the shares should also be paying a dividend by the end of the coming year as well. BUY

Source: 2014 Prediction #1: General Motors Hits $50 A Share