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Summary

  • 2015 earnings estimates were reduced by a penny.
  • The dividend yield is a pretty good 3.37%.
  • Additional recalls were made during the past month which affected Chevy Camaro, Silverado, and Tahoe just to name a few.

The last time I wrote about General Motors Company (NYSE:GM) I stated, "Due to the bearish technicals, falling financial efficiency ratios, and reduced 2015 earnings estimates, I will not be adding to my position right here." After writing the article, the stock has popped 2.69% versus the 2.71% gain the S&P 500 (NYSEARCA:SPY) posted. It's safe to say I missed out on the move up, but it wasn't much. GM 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 4.52%, excluding dividends (up 6.22% including dividends), and is losing to the S&P 500, which has gained 19.21% 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 19.16, 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 7.51 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $4.75 per share and I'd consider the stock inexpensive until about $71. The 1-year PEG ratio (0.37), 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 52.33%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 52.33%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 21.93%. 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

16Jun14

35.85

19.16

7.51

4.75

71

0.37

52.33

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 3.37% 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 3.37% 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

16Jun14

3.37

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 in middle-ground territory with a current value of 58.91. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line may cross below the red line with the divergence bars decreasing in height, indicating bearish momentum may just be getting started. As for the stock price itself ($35.85), I'm looking at $36.49 to act as resistance and $35.39 to act as support for a risk/reward ratio, which plays out to be -1.28% to 1.76%.

What Has Changed?

From the tables above, we see that nothing has changed really from May to June, but one thing I was able to do was catch up on the stock and evaluate the most recent earnings report. The company reported earnings which were 89% lower than a year ago on 1% more revenue, while the share price was down 7.22% between the earnings call in January and April. These were bad results to me because I don't like to see flattish revenue and definitely don't like to see a drop in earnings. The stock is one of the larger positions in my dividend portfolio. That being said, I think the stock is inexpensively valued, but earnings estimates keep decreasing slightly.

In addition to what I believe weren't so hot of an earnings report, the company continues to issue recalls on their vehicles. This time it was a recall of around 511,000 Chevy Camaros due to a potential issue which could lead to a loss of power. This recall affects the vehicles sold in the U.S. between 2010 and 2014. When is the madness going to end?

Four new recalls were reported before the Camaro recalls, affecting 105,000 vehicles this time. The heavy-duty Chevy Silverado and GMC Sierra full-size pickup trucks (2014-15 models), in addition to the Chevy Tahoe and Suburban, and GMC Yukon SUVs (2015 models) were recalled because the radio may not be working to the point that it prevents the noise being heard for sticking the key in the ignition while the driver's door is open.

Conclusion

I definitely liked the company and bought the stock immediately before the recall issues started to pop up so I'm kind of stuck with it but have been dollar cost averaging lower. I chose to dollar cost average the stock lower as opposed to sell it because I still like the prospects of the company, they are taking proactive steps to the recall situation now, and pay a good dividend to boot. Fundamentally, the company is inexpensively valued based on next year's earnings estimate and on future growth potential, while sporting excellent near- and long-term earnings growth potential, but the earnings estimate cuts for 2015 are what scare me. Financially, the company sports a high dividend yield which is well supported and I believe it can be raised in the next quarter. On a technical basis, the stock may experience some downward momentum in the near future. I'm not buying any additional positions as of today.

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 February 25, 2014, GM is down 1.92% while Kraft is up 7.37%, and the S&P 500 is up 4.74%. 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: High-Yielding GM's Stock Price Is Faring Well Despite More Recalls