by Veronica Chang
At about $22 per share, General Motors (NYSE:GM) is near its 52-week low of $19, which occurred in December. General Motors is certainly an interesting and potentially profitably investment opportunity. However, there is much controversy around this company and its ability to reach its potential depends largely on the United States government.
Domestic automobile sales have been significantly improving so far in 2012. General Motors enjoyed an increase in sales in the month of May by 11 percent, which suggests an increase in revenue, and hopefully profitability. This good sales report should eventually lead to greater value for shareholders, and increased stock prices. This jump in sales was reports to be largely due to the increased demand of environmentally friendly vehicles.
Something that intrigues me with General Motors is its ability to transform itself based on the needs and desires of its consumers. At the same time General Motors sees a huge boost in the amount of sales stemming from the demand of environmentally friendly vehicles, the company also increases its investments in eco-friendly construction and electric vehicles.
General Motors announced the construction of a new plant in Texas that will be one of five sites to focus on 'Green Construction'. These sites concentrate on following processes that reduce waste and use energy in an efficient manner. The company hopes to reduce construction costs by 15 percent, and according to an executive director at General Motors, data suggests the company is headed in the right direction. Even more impressive is the announcement that General Motors intends for all of its North American construction plants to adhere to the 'Green Construction'.
Looking at innovation within General Motors' production, one finds the completely electric Chevrolet Volt. The production of an electric vehicle is nothing special on its own, as Ford (NYSE:F), Toyota (NYSE:TM), and Honda (NYSE:HMC) are all companies that compete in the electric vehicle market. However, the special aspect of the Chevrolet Volt comes with the recent changes to its battery. These changes will boost the miles-per-gallon equivalent on a single charge, pushing it to the top spot, past Toyota's plug-in Prius model. The Chevrolet Volt was already the top selling rechargeable automobile in the United States last month, and these innovations should only extend the gap to the second highest seller.
Continued innovations should allow General Motors' stock price to increase, as it should lead to an increase in sales margins and eventually higher shareholder returns. General Motors is not just expanding into the electric car market, but it is also exploring the possibilities of vehicles that run on natural gas.
Westport Innovations (NASDAQ:WPRT) has teamed up with General Motors and Cummins (NYSE:CMI) to produce engines that run on natural gas. This could be an extremely successful venture, as it could become another environmentally safe option for consumers to buy if they are unhappy with often having to recharge their vehicles or using gasoline-consuming vehicles.
General Motors has made significant improvements and innovations in becoming eco-friendly, which should lead to higher company valuations and great return on investments for shareholders. However, I am not convinced investing in General Motors is a smart move, as there is one looming question over General Motors Company; how will significant government ownership continue to affect the company and what will happen to this ownership in the near future?
Republican presidential candidate Mitt Romney believes the United States government should sell its stake in General Motors. Romney thinks the government should drop its share of the company, so its management can run the company in the best interest of its consumers and the enterprise itself. Romney seems to think getting out of the government's General Motors bailout will allow the company to take the necessary steps it needs to grow and bring in more investors.
There is a problem with Romney's strategy, however. If the government were to sell off all of its shares of General Motors' stock, taxpayers would lose over $16 billion. Opponents to this strategy believe the government should wait until General Motors' stock price rises, to minimize taxpayer losses.
Most auto analysts believe General Motors' initial public offering valued its stock too high, and the decrease in its share price reflects not the direction the company is headed, but the struggling global economy and the inaccurate valuation of the company when it went public. Furthermore, analysts believe General Motors has made real progress, and that the stock will begin to regain value. However, if the government sells its shares too quickly, some believe General Motors' stock could decrease in response - leaving the company hurting.
The future of General Motors, at least for the time being, depends largely on how the government handles its 32 percent ownership in the company. This is one of the risks that come with being bailed out by the government; on the other hand, it is a small price to pay when the company was on the verge of bankruptcy.
General Motors has huge potential to keep leading the automobile industry in its recovery from the 2008 financial crisis. However, questions also surround the company over the future of the government control and how it will affect the company's ability to bring in investments and create higher return on investments for its shareholders.
In terms of GM analyst ratings, UBS recently reaffirmed its "buy" opinion of General Motors. Morgan Stanley analysts rate it as "overweight," and lastly Zacks' analysts believe it deserves a "neutral" rating. With shares of General Motors stock very close to its 52-week low, I think this is a profitable, but nonetheless risky, investment to make.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.