After General Motors (NYSE:GM) reported excellent first quarter results on April 23, it’s clear that the automaker is benefiting from rising wages in the U.S. and its popular vehicles. Meanwhile, the stock’s valuation remains very low, and it has pleased investors with its recent, shareholder-friendly moves. Finally, many Wall Street banks have turned very bullish on General Motors stock. The automaker will likely be well-prepared for the rising adoption of electric vehicles in the longer term.
Given all of these points, I recommend that value investors buy GM stock at this point.
Superb Q1 Results and a Low Valuation
By any measure, GM reported remarkable Q1 financial results on Apr. 23. Propelled by both higher revenue and cost cutting, the firm’s earnings per share advanced to $2.62 versus $2.21 in Q1 of 2023. Moreover, analysts, on average, had expected its Q1 EPS to come in at only $2.11. Meanwhile, GM’s top line climbed 7.5% year-over-year to $43 billion. The latter figure was $1.22 billion higher than analysts’ mean projection going into the print. And GM even increased its 2024 EPS guidance to $9 to $10 from its previous outlook of $8.50 to $9.50.
General Motors stock has advanced about 5% since the firm its Q1 results, but the shares still have an extremely low forward price-earnings ratio of 5. Moreover, its price-sales ratio of 0.34 is truly tiny.
Shareholder-Friendly Moves and Upbeat Notes From Multiple Banks
In November, GM disclosed that it would increase its dividend by 33% to 12 cents per quarter and buy back $10 billion of stock. The automaker ultimately followed through on the dividend increase.
In the wake of GM’s Q1 results, Swiss bank UBS increased its price target on the shares to $58. Among the reasons for the increase were positive changes to analysts’ earnings estimates in the wake of GM’s Q1 results and the firm’s Q1 performance itself. Japanese bank Mizuho, meanwhile, increased its target to $52 from $48, citing the automaker’s high sales of gasoline-powered trucks and SUVs, along with its reduced spending on the development of EVs. Finally, Wedbush increased its price target to $55, based partly on the company guidance increase and the firm’s ability to benefit from macro trends. All three banks kept “buy” ratings on the shares.
GM Is Well Positioned in EVs
There’s a great deal of doubt now about whether the EV Revolution will progress. But I think it’s clear that economics, with nudges from governments and technological improvements, will ultimately enable EVs to constitute 30% or more of sales in most countries, including the U.S., by the end of the decade. Electricity is simply much cheaper to produce than oil. Most electricity producers’ ability to hike prices is limited because they are tightly regulated. What’s more, electricity prices don’t quickly soar because of the actions of foreign countries and Wall Street speculators. As a result of these points, charging EVs will always, on the whole, be meaningfully cheaper than pumping gas into conventional vehicles.
And many countries and companies will install EV chargers, while battery ranges will increase as their charging times fall. Finally, governments will continue pushing automakers to sell EVs and incentivizing consumers to buy them. Due to all of these developments, the adoption of EVs will soar in the long term.
At a time when many other companies are scrambling to start creating a low-cost EV, GM already has its Chevy Bolt. Previously one of the most popular EVs in the U.S., the Bolt is on hiatus. However, it is scheduled to be brought back next year. And GM’s Cadillac Lyriq is becoming a popular electric SUV, as GM delivered 5,800 Lyriqs to consumers last quarter. GM is also offering several electric trucks and large SUVs, including the Blazer, the Hummer, its BrightDrop delivery van, the Equinox, and the Silverado.
Finally, GM reported that its newer, Ultium EVs will generate a “positive variable profit” by the end of this year.
On the date of publication, Larry Ramer 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
