Why General Motors May Be A Great Long-Term Investment

Summary

• General Motors appears undervalued based on the present price of about 5.6 times the earnings of 2016.
• GM's focus on future growth.
• GM's share repurchase program, worth $14 billion, benefits the long-term investor.

During the past years, many major indexes have reached new highs because of the growing stock prices. General Motors (NYSE:NYSE:GM), however, has not shared in this boom in the same way. During the past three years, the automaker's stock has been traded around the same price range, despite the company's improved earnings.

GM data by YCharts

Of course, today's investor does not profit from past growth and earnings but in General Motors' case, there is reason to believe in even more growth in the future. General Motors puts a lot of effort into improving profit margins and create growth:

Cost Efficiencies:

General Motors is paying a lot of attention to reduce costs and improve efficiency to drive further growth in the future. The automaker's cost efficiency target is 6.5 billion through 2018. They already have achieved reducing their costs by $4 billion. This will both have great short-term and long-term effects for General Motors because it will improve their current and future results but they will also get much better positioned throughout the business cycle.

New Products:

A great way to more growth is through new products. General Motors knows the importance of new product launches and is focusing a lot on building new, better, and more safer cars. Last year General Motors launched an electric vehicle, the 2017 Chevrolet Bolt EV that differentiates from other electric vehicles because of the combination of long range (238 miles on a full charge) and an affordable price ($30,000 after government incentives).

Besides the Chevy Bolt EV, General Motors launched, and is still launching, many new cars. At the moment, there is a greater demand for crossovers, which General Motors is also reacting to, by launching 4 new crossovers this year, like the Chevrolet Traverse, Chevrolet Equinox and GMC Terrain.

Growth from other markets:

General Motors is also focusing on growing their business outside the US. The automaker, based in Detroit, MI, has established a lot of joint ventures in other countries, for e.g. Baojun and Wuling in China. In 2017, General Motors is planning to launch 18 new models in China, which means that the automaker is trying a lot to grow even more in China. General Motors is also strongly positioned in South America, especially in Brazil. Better macroeconomics in Brazil could lead to higher demand for cars and therefore more future growth for General Motors.

Maven:

Last year General Motors launched a new subsidiary, their own car-sharing service Maven, which already has a fleet of 10,000 GM vehicles and operates in 17 cities in the United States with many more to come. Maven also differentiates from other big players (Uber (UBER), Lyft (LYFT)) in the sharing economy.

Contrary to Uber and Lyft, Maven is focusing on hourly car rental of their own vehicles like the Chevrolet Bolt, Chevrolet Malibu or Cadillac Escalade, depending on the size. Maven is also expected to expand to other countries. They have recently teamed up with Uber to expand to Australia by allowing Uber drivers to rent cars produced by General Motors' Australian manufacturer, GM Holden.

Investment in Lyft:

Last year General Motors paid $500 million for 9% equity ownership interest in Lyft. With this investment, General Motors is beginning to focus a lot more on ride-sharing and according to their annual report, the company is considering additional options to expand the ride-sharing offerings. In addition to the investment in Lyft, General Motors announced the Express Drive program few months later. The Express Drive program makes it possible, for Lyft drivers, to rent GM vehicles in multiple cities across the United States.

Acquisition of Cruise Automation:

Last year General Motors acquired Cruise Automation, a developer of self-driving autopilots for existing cars. Based on videos from General Motors showing an autonomous GM vehicle navigating in San Francisco, Cruise Automation is working out well. It will not be a surprise if General Motors will experience growth from Cruise Automation in the future.

OnStar:

Another GM subsidiary is the provider of in-vehicle services, OnStar. Emergency Services, Roadside Assistance, Stolen Vehicle Assistant and Wi-Fi hotspot are few out of many services OnStar offers. OnStar, which uses the subscription business model, has now more than 12 million connected vehicles and GM is expecting OnStar to continue to grow. Therefore, General Motors has currently many potential OnStar customers, and even more in the future, to grow the subsidiary's earnings a lot, which will have a positive effect on General Motors' future earnings.

At the present price of about 5.6 times the earnings of 2016, and prospects of further growth, General Motors appears undervalued. Based on the points above, there is reason to believe in a lot of growth in the future and therefore a good long-term investment. General Motors is also repurchasing their shares. A share repurchase program worth $14 billion benefitting the long-term investor.

Analyst’s Disclosure: I am/we are long GM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.