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General Motors Co. (GM, $34.73) announced late yesterday that it is recalling 672,200 cars, trucks, and SUVs to fix problems which can lead to axle fractures and transmission cooler line issues. This recall comes on the heels of a recent recall and Congressional investigation into ignition switch problems which allegedly caused crashes, and led to 12 deaths.
In a conversation with an Ohio GM dealer on March 25, Morgan Stanley analyst Adam Jonas gleaned these insights on local auto sales:
March sales are up about 40% year-over-year (YOY);
inventory is a little low, especially on Equinox and Malibu;
the ignition recall is not hurting sales, but it’s keeping the service departments busy;
the new Tahoe is awesome, and the Impala “needs some help”;
and used car sales are suffering due to quality issues.
Standard & Poor’s (S&P) expects GM’s revenues to climb 3.7% in 2014. Large 2013 European losses are expected to taper in 2014. Wall Street expects GM’s earnings per share (EPS) to grow 17%, 31% and 15% in 2014 through 2016 (Dec. year-end).
The 2014 price-earnings ratio (PE) is very low at 9.52%, within a 2010-2013 range of 4-18; and the 2013 long-term debt ratio is 12%.
On January 13 I reported, “President Dan Ammann said yesterday that the company is getting closer to reinitiating a quarterly dividend payout.” The next day, the company announced its first quarterly dividend in over six years. The current dividend yield is hefty at 3.46%.
When I wrote about GM on January 13, I listed the reasons that I wouldn’t own the stock. Those reasons had to do with intricate government involvement in GM’s operations, and the company’s irresponsible treatment of shareholders and employees.
S&P gives GM shares a Risk Assessment of Medium. “Our risk assessment reflects the highly cyclical and increasingly competitive nature of GM’s markets, offset by our view of the company’s leaner post-bankruptcy cost structure and lower debt obligations.”
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On February 3 I wrote, “If I owned GM shares, I would hold them for an expected near-term rebound to about $38.50, then reassess at that time.” The stock proceeded to rise to $38.05 in early March, then fell again.
The stock broke through medium-term upside resistance in May 2013 (scroll down to see the three-year chart).
The stock has good support at $33.50/$34.00 where it bounced repeatedly last summer, and again this month. The chart is bearish, however, the stock could bounce up to $37.50/$38.00 in the very short term. But with the additional recall issues announced on March 28, I’m wondering how much more bad news the stock can take, before breaking support.
I’m very glad I don’t own GM stock. If I owned it, and it held support on Monday morning, I would expect a near-term rebound and put in a sell limit order at $37.25. If the stock closes below support on Monday, it’s a short candidate.
There’s no reason for investors to go bottom-fishing with GM. There are many other stocks available with strong earnings growth and more bullish charts, which should theoretically achieve capital appreciation more quickly than shares in General Motors Company.
Goodfellow LLC Rating: Aggressive Growth, Growth & Income, Volatile, Value, Public. (03-29-14)
GM data by YCharts
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