General Motors (NYSE:GM) has been a position in my value portfolio since it sold in the high $20s. I recently moved it into my income portfolio as it initiated a dividend that equated to a better than a three percent yield - my cutoff for inclusion into that portion of my portfolio.
The company has made huge strides since emerging from bankruptcy. It also has a very underappreciated and fast growing business in China. I continue to hold the shares as they pay a good dividend, are cheap on a valuation basis and I believe catalysts are lining up to drive the shares to $45 a share.
Let's take a look at the company's three core markets, all of which have provided some positive readings over the past week.
The company recently reported a slight 1% decline in February sales in the United States. This was better than consensus. General Motors also stated they saw some late month momentum and inventory levels declined from 87 days from 117 days in the January period. I believe auto sales should be strong in Spring as pent up demand hemmed in by some of the worse weather in much of the country in two decades gets released.
General Motors is just killing it in the Middle Kingdom. Through its joint ventures it just reported 20% Y/Y growth to over 255,000 vehicles a month. Wuling microvans (50% of overall production) rose 32% Y/Y. Cadillac sales rose over 90% and seem on track to reach the company's goal of 100,000 vehicles a month in 2015.
General Motors is investing heavily the world's leading emerging market. The automaker plans to introduce 19 new or refreshed models in the nation in 2014. It also should continue to take market share from Japanese automakers as tensions between China and Japan continue to escalate.
The eurozone posted better than expected retail sales and services PMI figures for February than was expected this morning. The continent continues to recover from a deep recession and overall growth should come between 1% and 2% this year.
The overall tone at the Geneva Motor Show was positive with consensus at least the auto market has bottomed. I don't expect General Motors to make money in Europe this year, but it is should at least take smaller operational losses.
The shares are still cheap at around $37 a share. GM pays a 3.3% dividend and stock goes for right at 10x this year's expected earnings. This is a third lower than the overall market multiple (~15x). GM is even cheaper based on FY2015's expected earnings where it is priced at ~7.5x the current consensus earnings estimate of ~4.88 a share. The stock sells at a five year projected PEG of under 1 (.52).
The 16 analysts that cover the shares have a $47.50 a share median price target on GM. Taking 5% off that consensus price target gives me a price target of $45 a share. Given earnings growth, improvements in its core markets and its over 3% dividend yield this might prove conservative. BUY
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.