• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

A Good Day to Be Mary Barra, but It's Been a Bad Year to Be a GM Shareholder

If Barra is willing to be as bold with the company's balance sheet as with its corporate strategy, GM shares could be the ultimate value play.
By JIM COLLINS
Jan 11, 2019 | 12:00 PM EST
Stocks quotes in this article: GM, AAPL, M, AAL, F, SFTBY, HMC, TSLA, GOOGL

General Motors  (GM) shares were jumping in a down market Friday morning on the back of positive guidance for 2019 earnings delivered by CEO Mary Barra at the company's Capital Markets Day in New York. Given the recent profit warnings from Apple (AAPL) , Macy's (M) and American Airlines (AAL) , GM's news was refreshing. Today's ray of light does not change the fact, however, that even after this morning's move GM shares have fallen 15% in the past 12 months.

GM needs to benchmark itself against other consumer goods companies in terms of shareholder returns, not just other car companies. 99.9% of the investing population does not care that GM shares have outperformed those of Ford (F) . Other than management compensation consultants, only the lonely, wandering geeks known as sell-side auto auto analysts -- and I was one for 11 years -- use the metric of car company vs. car company when it comes to shareholder returns. The rest of the world looks at any company versus the overall market.

As of Thursday's close (obviously the stagger has narrowed a bit this morning) GM shares' 3-year and 5-year annualized average returns of 9.99% and 0.9% lagged the Morningstar U.S. stock market total return index by 285 and 805 basis points, respectively.

GM needs to focus on its shareholders, not its competitors. It can be difficult to do that in a political climate in which GM's decision to close its final assembly plant in Lordstown, Ohio (among others) brought the company much criticism in November, but the Street rewards managements that make the tough decisions, not the easy ones.

So, for GM to re-attain the mid-$40s share price that the market accorded it as recently as last June, I believe the company needs to perform the following actions:

Deliver sustainable operating margins above 10% in the GM North America unit. We're barely into 2019, but today's release was an indication that GM believes that hurdle is attainable again this year. Great outlook, but let's see them deliver.

Buy back stock. I was re-reading GM's 3Q2018 10-Q this morning and came across a shocking stat. GM's share repurchases for the first 9 months of 2018 totaled a paltry $100 million, a huge decline from the $3 billion figure for the corresponding nine month period in 2017. With automotive cash flow running at an annual rate in excess of $13 billion, capital expenditures slated for 2019 at a normal level of $8 to $9 billion and GM Financial paying a $400 million dividend back to the parent company in the fourth quarter of 2018 -- the first intra-company dividend in GM Financial's relatively short, post-Crisis history -- GM is flush with liquidity. Shareholders need to know what GM management is planning to do with that excess cash flow.

Delineate the future for a spun-off GM Cruise. If GM is not buying back shares because management believes every incremental dollar of capital should be spent on the transition toward a mobility company -- especially through GM's autonomous vehicle division, Cruise --then the Street needs to know when those investments will be returned. Based on today's early trading price of $37.41 and the midpoint of its 2019 EPS guidance range of $6.50-$7.00, GM shares are trading at 5.5x 2019 EPS.

Instead of subtracting the $14.8 billion in outside investments in Cruise that GM has raised from SoftBank (SFTBY) and Honda (HMC) , and saying "our core automotive business in really cheap," GM management needs to present the market with an alternative to owning that core automotive business, with its unfunded pension and OPEB liabilities.

I have no idea what multiple the market would accord to Cruise, but I am quite certain it would be magnitudes higher than 5.5x. Tesla (TSLA) is trading at about 150x 2019 consensus EPS today. Yet there is not a single person that I have spoken to at any global auto company that believes that Tesla is anywhere near a viable AV offering, unlike Cruise, Alphabet's (GOOGL) Waymo and UBER. I believe all three of those entities will have commercially-viable AVs on the road by the end of 2019.

So, it's a good day to be Mary Barra, but it has been a bad year -- and 5 years, as well -- in which to be a GM shareholder. If Ms. Barra wants to watch shareholder value languish and lament the cyclicality of her industry, then GM shares will remain in my "avoid pile" permanently, albeit slightly closer to the top than Ford. Companies that only manufacture autos are NEVER going to be accorded higher multiples than they are currently, which is not materially different than the ones accorded them when I first started following the industry in 1992. Only a real transition to higher value-added services (self-driving cars, for instance) can alter that dynamic.

Spending nearly all my adult life following auto stocks has taught me to avoid them in all but the worst global economic times, and obviously we are light years from those. If you are willing to bet on a future of human transportation dominated by AVs, though, GM shares offer a cheap way to play that dynamic without all the hype and mumbo jumbo afforded to "geniuses" like Elon Musk. If Ms. Barra is willing to be as bold with the company's balance sheet as with its corporate strategy, GM shares could be the ultimate value play.

(Apple and Alphabet are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AAPL or GOOGL? Learn more now.)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jim Collins had no position in the securities mentioned.

TAGS: Earnings | Economy | Investing | Markets | Stocks | Trading | Value Investing | Automotive | Technology

More from Investing

Let's Shine a Light on Lucid Motors as It Slides Downhill

Brad Ginesin
Jul 2, 2022 1:00 PM EDT

LCID's market cap has been deflated, so is it now a bargain, or can it slip further?

Stop Wishing, Hoping and Praying and Take Control of Your Investing

James "Rev Shark" DePorre
Jul 2, 2022 10:00 AM EDT

The most powerful thing an investor can do is embrace the idea that they don't know what the future holds.

If You've Got Time, These Three Dividend Aristocrats Should Pay Off

Bob Ciura
Jul 2, 2022 7:30 AM EDT

There high-growth dividend stocks will be here over the long haul.

Welcome to Second Semester on Wall Street, Here's How to Make the Grade

Jim Collins
Jul 1, 2022 4:36 PM EDT

Think you can own big tech? You might just get an 'F' for that. Here's what will get you on the other side of this year.

We Got a Break, but the Heat Is Still On

James "Rev Shark" DePorre
Jul 1, 2022 4:22 PM EDT

A limited rally cooled some of the negativity on the market, but guess what's going to hit the fan soon?

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:49 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Stop Wishing, Hoping, and Praying and Take Control...
  • 07:59 PM EDT PAUL PRICE

    Very Good Quarterly Numbers From Bassett Furniture (BSET)

    Bassett Furniture blew right through analysts es...
  • 04:41 PM EDT PAUL PRICE

    First-Half Results - Putrid; Second Half Results - Likely to Be Much Better

    It's great that we're done with June. 2022 mark...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login