Detroit’s comeback is nothing short of a miracle. As a city, it was dead and buried as recently as 2013, when it declared bankruptcy with more than $18 billion in debt. It has come a long way since those dark days.
It’s not perfect — no city is. However, it’s attracting attention from various places, including the NFL, which held its annual draft in Detroit from April 25 to April 27. Approximately 270,000 people attended the first day — not too shabby.
I grew up in Toronto, a three-hour drive down the 401 from Detroit. It’s nice to see how far it has come.
A recent Fortune article covered the Property Brothers — Canadians Drew and Jonathan Scott — discussing real estate investing on CNBC. It highlighted the progress made by the once-down-and-out auto town.
“Detroit is like that on a national level. There’s so much money pouring in, so much redevelopment happening. I bet you in 20 years, it’s going to be one of the most technically advanced cities,” Jonathan told CNBC.
Detroit is happening. Here are three ways to play its comeback.
General Motors (GM)
On April 15, General Motors (NYSE:GM) announced that it was moving its Detroit headquarters in 2025 to Hudson’s Detroit, a new development on the former location of the J.L. Hudson Department Store, one of North America’s finest retail establishments in its day.
“The move to Hudson’s Detroit will mark GM’s return to Woodward Avenue, where it established its first headquarters in the city. GM has now entered into an initial 15-year, multi-level lease for the top office floors of the state-of-the-art office building as well as showcase space on the street level for GM vehicles and community activations,” stated its April 15 press release.
It’s a good decision by CEO Mary Barra. She’s on a bit of a roll in 2024.
On April 23, it reported strong Q1 2024 results, including a 7.6% increase in sales and $2.62 in earnings per share, $1.1 billion and 47 cents higher than analyst estimates. Further, it raised its adjusted pre-tax profits for 2024 to $13.5 billion at the midpoint of its guidance, up from $13.0 billion.
Graham Holdings (GHC)
In October 2013, the Graham family sold The Washington Post and its other publishing businesses to Jeff Bezos for $250 million. The remaining assets of the Graham Holdings Co. (NYSE:GHC) are managed by CEO Donald Graham, whose family controls the right to nominate 70% of the board. As a result, it is a “controlled company.”
What does Detroit have to do with Graham Holdings? It owns Graham Media Group, which has headquarters in Detroit. Local assets include Detroit NBC TV affiliate WDIV and Graham Digital.
Graham Holdings itself has some excellent assets in addition to Graham Media Group. However, it would be fair to say that the stock’s performance since October 2013 has been choppy. While up 90% over the past decade, the company has experienced 2-3 significant drawdowns. It trades within 9% of its all-time high of $771.05 in March.
Its broadcasting business generated $472.4 million in revenue and $133.9 million in operating income in 2023, a 28.3% operating margin. It is Graham Holdings’ largest income generator.
“Graham Media Group does not need to service mountains of debt, and the cash flow generation from our non-media operations means that we can be focused on the option that maximizes value over a longer time horizon,” states page 3 of its 2023 annual report.
If you like sum-of-the-parts holding companies, GHC is for you.
Masco (MAS)
Masco’s (NYSE:MAS) headquarters are in Livonia, a suburb of Detroit 25 miles from the Hudson’s Detroit development in downtown Detroit, where GM is moving. For over 100 years, Masco has manufactured home improvement and building products.
In 2015, it spun off TopBuild (NYSE:BLD), the company’s installer and distributor of insulation and building products subsidiary, into its own publicly traded company. Ultimately, due to the spin-off, Masco shareholders got one BLD share for every nine MAS shares, with TopBuild stock up 1,689% since its IPO.
Today, it has annual sales of $8.0 billion, 60% of which come from its Plumbing Products segment (Delta, Peerless, Axor, etc.) and the remaining 40% from Decorative Architectural Products (Behr, Kilz, Whizz, etc.). Furthermore, for the past four years, its revenue has grown by 4%, and operating profits by 5% compounded annually. Due to healthy share repurchases, earnings per share have grown by 14% over the same period.
In 2024, it expects to spend $600 million on share repurchases and bolt-on acquisitions. Its annual dividend is $1.16, yielding 1.7%. It aims to pay 30% of its earnings for dividends each year. Over the past year, it’s outperformed the S&P 500 by 822 basis points, up 30.54%.
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On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
