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Summary

  • 2015 earnings estimates have been reduced recently.
  • Financial efficiency ratios have decreased across the board.
  • Other recalls to vehicles have been announced within the past month.

The last time I wrote about General Motors Company (NYSE:GM) I stated, "I have initiated my position in GM a month ago, before all the recall issues, and am down 10.68% on my position." After the writing the article the stock increased 7.34% versus the 3.16% gain the S&P 500 (NYSEARCA:SPY) posted. General Motors designs, builds and sells cars, trucks and automobile parts globally.

On April 24, 2014, the company reported first quarter earnings of $0.29 per share, which beat the consensus of analysts' estimates by $0.08. In the past year the company's stock is up 11.2% excluding dividends (up 12.08% including dividends) and is losing to the S&P 500, which has gained 15.59% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if right now is a good time to purchase more of the stock for my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 18.78, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 7.34 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $4.76 per share and I'd consider the stock inexpensive until about $71. The 1-year PEG ratio (0.38), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced based on a 1-year EPS growth rate of 49.76%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 49.76%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 21.18%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

15Apr14

32.55

13.68

6.70

4.86

72

0.38

35.88

14May14

34.94

18.78

7.34

4.76

71

0.38

49.76

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.43% with a payout ratio of 65% of trailing 12-month earnings while sporting return on assets, equity and investment values of 4%, 19.9% and 3.7%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.43% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

15Apr14

3.69

50

4.7

24.6

3.7

14May14

3.43

65

4.0

19.9

3.7

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling in middle-ground territory with a current value of 54.22. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($34.94), I'm looking at the 200-day simple moving average (currently $36.23) to act as resistance and the 50-day simple moving average (currently $34.61) to act as support for a risk/reward ratio which plays out to be -0.94% to 3.69%.

Recent News

  1. The company has conducted a detailed test with respect to the ignition switch recall. The report concluded that if only the key is attached to the ignition switch the vehicle operates normally. The report has been submitted to NHTSA and is currently posted on their website.
  2. First there was Wi-Fi on planes, and now there is Wi-Fi in cars. The serviced will be provided for 2015 GM models. After a customer's free trial period with Onstar is over they will be able to purchase a service plan for as low as $5 per month.
  3. Another recall has been issued by the company. The affected vehicles include 2014 Buick LaCrosse and Chevrolet Malibu vehicles which may exhibit a potential problem with the braking system.

Conclusion

Though recalls continue to mount against this automobile manufacturer, investors seem to be dismissing the news as the stock is up 7.34% in the last month alone. Fundamentally, this company is undervalued on next year's earnings and on earnings growth potential while short and long-term earnings growth expectations are excellent. However, earnings estimates for 2015 have been reduced by a dime from last month. Financially, this is a high yielding dividend company but the financial efficiency ratios have decreased. Technically, the stock is approaching a support level in the 50-day simple moving average but if it breaks below that level it can drop even more. Due to the bearish technicals, falling financial efficiency ratios, and reduced 2015 earnings estimates, I will not be adding to my position right here.

Because I swapped out Kraft (NASDAQ:KRFT) for GM in my dividend portfolio it is only fair that I provide an update from the swap-out date. From 25Feb14, GM is down 4.4% while Kraft is up 4.33%, and the S&P 500 is up 2.2%. The trade has not worked well thus far. I believe it was the timing that was the issue as I did the swap out right before the huge recall announcement. However, I still like the prospects of GM over Kraft in the long term and will continue to provide updates.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Is It Time To Buy High-Yielding General Motors?