General Motors (GM) has been a part of the American way of life for as long as baseball has been. I generally do not use sports analogies when speaking about stocks but this one just seems appropriate right now.
It was not long ago that baseball in the US experienced blemish after blemish. Between the player issues of performance enhancing use, and the player union strikes as well as the ownership lockouts, all of which impacted not only the perception of the fans, but also at the gate.
For a period of time, teams had more empty seats and aside from the big market teams many began hurting financially. Soon, there were teams that were sold, or re-located and baseball was faced with a dilemma; winning the fans back.
A similar scenario has plagued the US auto industry for too many years. With the financial crisis came bailouts and begging. General Motors, among others, went with hat in hand to our government to help save the company, keep Americans working, and basically to give the most important manufacturing sector in the USA, another chance.
Ford (F) did not need the money since they put everything on the line including the famous Ford logo. They had a visionary leader who took the bull by the horns and since that time have turned their business around. Almost to the brink of an amazing success story.
I am saying almost because the one thing that stands in their way is General Motors. Truth be told, it seems GM has always stood in the way of Ford being the number one auto manufacturer on the Earth. From the 1940's to 1980 Ford had been relegated to second place, and when the imports became strong, fell further behind. Even in the worst of times, General Motors has always eclipsed Ford. In sales, design, and in the hearts of car enthusiasts everywhere.
Now as the industry has roared back to life, Ford has had a remarkable resurgence in sales, profits, design and of course winning their fans back. General Motors is still ahead of Ford but they have the one stigma that sticks in the collective craw of the "fans"; just like some ballplayers who "juiced up" to perform, GM took taxpayer money in the form of a bailout to survive.
The adoration that Ford has garnered has not landed in the General Motors executive offices. Smugly called "Government Motors", they have yet to repay the complete amount of the "loan" and the US government still owns a substantial if not ridiculous stake in GM stock.
GM is still ahead of Ford however. How can that be?
General Motors Has The Bling
Ford, General Motors, and Chrysler are often referred to as the "Big Three" or, more recently the "Detroit Three", being the largest automakers in the United States and Canada. They were for a while the largest in the world and two of them are still a mainstay in the top five. Ford has held the position of second-ranked automaker for the past 56 years, being relegated to third in North American sales, after being overtaken by Toyota (TM) in 2007. That year, Toyota produced more vehicles than GM, though GM still outsold Toyota that year, giving GM 77 consecutive calendar years of top sales.
The fact of the matter is that through it all, GM has had more products that people wanted to buy. For 77 years they have been ahead of Ford, through good times and bad. For 77 years General Motors has been to Ford, what the New York Yankees have been to the Boston Red Sox.
It is all about the "lineup" and GM has had the lineup of cars that the fans wanted, desired and bragged about. Ford had and has great cars, but GM has the "bling".
They have hybrids and trucks and crossovers. Luxury, mid-size, and compact. Every price range for every budget. Sedans, sports cars and coupes. Cutting edge design is back, and that old feeling of desirability and want is creeping back into the minds of the "fans".
One thing though; they are still not loved, yet.
Winning Hearts, Minds, And Pocket Books
The road back to being the best has begun and Wall Street is beginning to take notice. This article tells us how Moody's is viewing both Ford and GM.
Moody's, in a statement Tuesday after the stock market closed, cited Ford's strength in North America, strong liquidity, and sound financial discipline. Moody's also made positive comments on General Motors, saying GM is taking steps that could be supportive of an investment grade rating in the near term.
A small step to be sure, but the tide is turning.
Another sign of real positives is the fact that Warren Buffett has purchased a large stake in GM shares as reported in this article:
Seems like GM's low valuation is just too good for Warren to resist," Adam Jonas, an analyst with Morgan Stanley, wrote in a note to investors. "While buying 10 million shares of GM isn't a huge bet (yet), the market signal for the U.S. auto industry is as unprecedented as it is fascinating." Jonas titled the report "Buffett Motors."
Say what you will about the old "Oracle of Omaha", but when he buys, people notice. I have no idea if this will be his only purchase of GM shares, but buying 10 million is sort of like the "Good Housekeeping Seal of Approval" to investors. Both institutional and individual alike.
General Motors is also hiring American workers, as noted in this article, and while it might not be a plethora of new jobs, it does signal another piece of the turnaround.
General Motors Company is reportedly enlarging its workforce in the Detroit-Hamtramck assembly plant by adding 200 new workers. The decision comes in the wake of rising demand prior to the beginning of the production of 2013 Chevrolet Malibu."............."The Detroit-Hamtramck factory products include Chevrolet Volt, Opel Ampera and Chevrolet Malibu (to be launched in 2013). The plant will also build the new 2014 Chevrolet Impala. The company has invested $336 million for Chevrolet Volt and Opel Ampera, roughly $121 million for Chevrolet Malibu and $69 million for Chevrolet Impala.
The company is also beginning to make smart advertising decisions as well. Pulling out of Facebook (FB) and opting out of the NFL Super-Bowl advertising slugfest obviously shows a much better discipline on where money is being spent.
GM revealed late last week that it would not run ads during the big game, which is expected to command $3.5 million for a 30-second commercial, because it wouldn't get a big-enough return on the investment. The move came days after the auto giant said it would stop buying ads on Facebook, due to a lack of effectiveness.
It further notes:
.......GM's decision here, and to move away from Facebook, suggests that someone there - and maybe others in the industry follow - is really starting to look at what sells the brand, instead of focusing on the buy.
Current shareholders as well as new ones should take special note of this development in my opinion, because how GM will win hearts and minds begins with the brand, not a "click" or a single 30 second TV spot, but an overall brand strategy that got GM to where it always has been. Number one.
General Motors is positioned to grow significantly and along with it will come tremendous capital appreciation if successful.
Back in January of 2011 GM shares hit $38.98/share and now it is hovering around $22.00/share. I believe this stock is ultra cheap now and even at $39 bucks it was cheap.
With a forward PE of under 5 it is simply undervalued right now. Undervalued, but not very "unloved" anymore.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GM over the next 72 hours.