GM Stock Still Paying for Sins of the Past

| About: General Motors (GM)

There aren't many stocks selling at Price-Earnings multiples under 5. Gannett (NYSE:GCI) sells at around 6, but they're a newspaper company with few other media holdings. RIMM trades at a PE of 4 but they're circling the drain. I know the chart for GM (NYSE:GM) may disagree, but Google Finance pegs GM's current PE at 4.97.

What are you getting for your money? General Motors has solid short-term prospects, in part due to the Japanese earthquake, its cost problems are mainly over, it has committed to doubling its cars' mileage, and it's even taking a flyer on solar carports for its dealers.

Yet as trading started today you could get $5.66 per share in earnings for under $28.

One reason for the bargain is politics. There remains a bad odor over the bailout that allowed GM to get back on its feet. Never mind that the money was repaid, with interest. Never mind that the company is now investing billions in new plants, which will result in thousands of new American jobs. The same is true for other bailout recipients – JPMorgan Chase (NYSE:JPM) trades at a PE under 9, Citigroup (NYSE:C) is down around 11, and even Goldman Sachs (NYSE:GS) can't get out of the low teens.

Another reason is the conditions leading to the bailout. GM has become synonymous with labor trouble, with excessive costs, and with product lines that overlap and make no sense. But labor costs are now under control, costs are too, and the overlapping product lines are gone.

Some of the skepticism makes sense to me. Before stocks can sustain a long-term rally it would be good if multiples were generally in the long-term range of 10-15. That shows value. The car business is no longer considered cutting edge, a slow-growth industry thanks in part to products that don't wear out as quickly.

But there is a big wide wonderful world out there. I visited China a few years ago and Chinese people love GM cars. GM is participating in China's export boom through the Chevy Sail. But unlike the case with, say, tech companies, it's not a one-way street. GM also sells product into China.

Analysts from Morgan Stanley, UBS and RBC have all give positive ratings on GM stock recently, based on their belief that those earnings are heading up, not down.

It's obvious that, with the debt ceiling debate and the likelihood of fiscal restraint arising from it, creating more headwinds on a slowing economy, that there is a bearish case to be made on the U.S. economy. But there is also a bullish case.

And if you believe in that case, what's good for GM may indeed be good for your portfolio.

Disclosure: I own some Ford but no GM