General Motors Company (NYSE: GM) is suddenly finding another gear.
After slipping below $30.00 in November 2023 (for the first time since the pandemic), shares of the old school automaker have bounced more than 40%. From a chart perspective, the surge is noteworthy for several reasons:
- The current three-month win streak (the first since 2021) has coincided with above-average trading volume. Monthly volume topped 400 million shares in November, December and January, suggesting investors’ renewed interest in GM is for real.
- Last week, the 50-day moving average (MA) line crossed over the 200-day moving average line. Often referred to as a “golden cross,” the event suggests that GM is in the early stages of a long-term bull market. While a profit-taking pullback is already underway, the uptrend is likely to resume if the stock can find support at the 50-day MA.
- Approximately 10% of GM’s float is held short. Short covering could accelerate the uptrend in the coming months.
- GM has gapped up in heavy volume on two occasions over the last two months. When a stock jumps to a new level with unusually high buying activity, it often means the market has mispriced it — and that further upward recalibration lies ahead.
In late November, GM gapped up 9% after reinstating its 2023 guidance — and announcing a $10 billion buyback program and 33% dividend hike. Daily volume was five times above normal and the highest in years. In hindsight, this was a bullish sign of more to come.
The stock’s latest high-volume gapper came last week. GM jumped 8% on January 30th when the company delivered consensus-topping fourth-quarter financials. With Wall Street expecting a year-over-year sales decline, GM posted flat revenue of $42.98 billion. Earnings per share (EPS) were down sharply but not as much as feared. Considering the period was marked by a labor strike and weak electric vehicle (EV) sales, it was a solid report.
What is GM’s 2024 profit outlook?
GM’s prediction of “a year of strong performance” in 2024 is also responsible for the recent bullish market sentiment. Management is forecasting full-year adjusted EPS of $8.50 to $9.50. At the midpoint, this implies 21% growth over last year’s performance. The anticipated profit surge is especially impressive given that analysts are projecting little to no EPS growth at Tesla this year.
GM expects to benefit from the absence of a UAW strike, fixed cost reductions and lower EV inventory allowance adjustments. It also expects to gain market share as a result of higher EV penetration. As Tesla can attest to, EV industry pricing is trending lower — but GM believes it can offset this headwind with improved sales volumes. Its 2024 EV launches include the Chevy Silverado EV RST pickup and the $340,000 Cadillac CELESTIQ luxury sedan.
GM’s growth outlook does, however, come with an asterisk. Almost all of the expected EPS increase is due to stock buybacks. In November 2023, the company initiated an accelerated share repurchase program that is slated to boost 2024 EPS by $1.45. Although this implies profit growth will be relatively flat, it is still good. The Board’s plan to scoop up depressed GM shares this year should provide a floor for the share price and lead to higher EPS.
Is GM a good value stock?
In addition to the current buyback program, GM offers shareholder value in the form of a growing dividend. During the Q4 report, the Board declared a 2024 first-quarter dividend of $0.12 per share, which represents a 35% increase from the previous payout. Although GM’s forward dividend yield (1.3%) still woefully lags that of Ford (5.1%), the hike signals an improving financial outlook.
In terms of valuation, GM remains well undervalued at around 5x trailing 12 months earnings. Over the last five years, the stock has traded at an average price-to-earnings (P/E) ratio of 8x, and the average auto industry P/E is 13x. Ford and Tesla’s P/E ratios are 8x and 42x, respectively.
If GM’s financial picture improves as expected, its P/E multiple is likely to gravitate back towards its historical average. Since nearly 50% upside separates the current P/E from the average P/E, GM may be a ride worth taking for long-term value investors.
