Seeking Alpha
Long/short equity, tech, large-cap, energy
Profile| Send Message|
( followers)  

Summary

  • General Motors shares have a value of $34.24, a drop of 1.01% as compared to $34.59.
  • GM reported a strong and stable sales figure for the month of July and showed double digit growth.
  • During the 2nd quarter of fiscal year 2014 GM generated revenue of $39.6 billion, compared to the revenue of the 2nd quarter of fiscal year 2013 which was $39.1 billion.
  • With new innovative and successful vehicle launches, GM is continuing the trend of generating strong impressive results in U.S. and China.

As of August 22nd 2014, General Motors shares have a value of $34.24, a drop by 1.01% as compared to $34.59 at which the market closed on August 21st. This fall can be attributed to the negative impact of the overall market movement. General Motors (NYSE:GM) announced that it planned to expand its operations in Brazil which is its largest subsidiary in South America. It plans to invest $2.9 billion in Brazil for the period 2014-2018.

The company is planning to use the funds for the development and introduction of new technologies and products and to utilize the funds for the training of the workers as well. It plans to improve the Chevrolet line-up and attempts to focus on enhancing the quality. GM is currently focused on its business in populous developing markets such as Brazil, China and India. It plans to recapture its global sales and increase investment capacity.

GM also has plans to establish a new stamping facility at the Lansing Grand River Assembly plant in U.S. The company has announced that it will be investing $174 million in the plant which will lead to the creation of around 145 new jobs. The facility will initiate operations from fiscal year 2016. Through this facility General Motors expects to generate savings worth $14 million each year concerning material handling related logistics costs.

Recently Paulson & Co. closed its position in General Motors Company and they sold around 4 million shares, which was a deal worth more than $130 million.

Why buy GM stock?

Although General Motors issued a massive recall this year, despite that, its sales still show an upward trend. The company is letting many owners of recalled vehicles buy new ones through a $500 incentive. GM reported a strong and stable sales figure for the month of July and showed double digit growth. Most of the vehicle redesigns have proved to be effective and the company has promised that more are following.

For General Motors, China has proved to be a massive market. Amongst all the automakers in China, General Motors is the leading company. The company has also made substantial investments in other potential emerging markets such as Brazil. The newly established dividend also presents a promising figure of 3.3% and it is expected to most likely rise over time.

Earnings Overview

In the second quarter of 2014, GM reported a year over year decline of 83% in the net income attributable to common stockholders. The revenue of General Motors increased by $0.5 billion to an amount of $39.6 billion. General Motors strong performance was offset by a pre-tax net loss of $1.3 billion from special items and $1.2 billion from repairs costs related to recall. The company also made a charge for GM's ignition switch compensation program of $0.4 billion. The adjusted EBIT was $1.4 billion after the deduction of recall related costs of $1.2 billion and restructuring costs of $0.2 billion.

During the 2nd quarter of fiscal year 2014 General Motors generated revenue of $39.6 billion, compared to the revenue of the 2nd quarter of fiscal year 2013 which was $39.1 billion. The net income attributable to common stockholders was $0.2 billion, compared to last year's same quarter figure which was $1.2 million. The diluted earnings per share for 2014's second quarter were $0.11 a share compared to $0.75 in 2013's second quarter. The second quarter total financial earnings before tax were $0.3 billion for 2014 and $0.3 billion for 2013 as well. The company's liquidity showed a strong position with a figure of $38.8 billion. The cash flow from operating activities stood at $3.6 billion and the adjusted automotive free cash flow was $1.9 billion.

Exploring Headwinds GM Still Faces

General Motors has been on its way to recovery since its bankruptcy restructuring in fiscal year 2009. But currently the investors are more interested in the problem that occurred recently which was the huge recall disaster. It is estimated that the recalls will cost around $6 billion. GM is responsible for about two-thirds of the recalls that US automakers issued this year, with a total value of all recalls being 37 million.

Other issues that the investors might be concerned about are the downward trends in the net profit margins and net income. Although revenue for General Motors Company is rising and it has a strong free cash flow of about $5 billion annually, it also has a rising trend in its debt figure which is already substantially high. Due to these concerns investors are reluctant to make investments in GM stock but the company has an improving top line which makes it extremely valuable and therefore proposes the idea that the earnings are most likely to increase as operations become efficient.

Conclusion

Overall, despite all the challenges that General Motors Company is facing, GM stock should be considered by long-term investors for their portfolios. It had a price-to-sales ratio of 0.4, which was below the industry average, and it had a Price Earnings ratio of below eight. Warren Buffett, legendary value investor, has GM stock of worth more than $1 billion and recently in the last quarter he added nearly 3 million more shares.

With new innovative and successful vehicle launches, General Motors is continuing the trend of generating strong impressive results in U.S. and China. GM stock has performed poorly this year but compared to other global auto manufacturers, it has not acted worse than them. GM stock is still a good buy as the company is about to put into effect its plans to expand its operations in emerging markets and plans to deliver the results it promised earlier this year.

Source: General Motors: Buy Or Sell?