Inflation, rising interest rates, and recession fears have all conspired against
stock. Its shares are still worth owning.
Barron’srecommended buying General Motors (ticker: GM) stock in early May. The timing wasn’t great. GM shares are off 14% since the call, more than double the
The macro headwinds were well known at the time, but they’ve all gotten worse since then. Inflation fears have escalated; the Federal Reserve has picked up the pace of rate hikes, which could hurt demand for new cars purchased with financing; and fewer people think about buying cars when they’re worried about losing their jobs.
Given all that, fewer investors want to own car stocks. GM has suffered, but no more than
(F). whose shares are down 17%, or
(TSLA), whose stock is off 16%.
The good news for value investors is that the auto sector is now pricing in a recession—full stop. GM stock, at about five times 2023 earnings estimates, is cheaper now than it was through the depths of the pandemic. Based on that alone, it would be a terrible time to abandon ship now.
What’s more, GM offers investors a free call option, Wall Street jargon for a big “what if?” What if even a part of GM’s plans for electric vehicles, self-driving cars, and software-based services works? Then the stock is a steal.
GM is spending about $35 billion between 2021 and 2025 to design and build EVs. That’s as aggressive as any traditional auto maker vying for EV share. What’s more, GM has partnered with battery makers, chemical companies, and raw materials suppliers to ensure its EV supply chain is in industry-leading shape.
The company hopes all that will yield a million annual EV sales in North America by 2025. “We’re going to be the leader by mid-decade…because we’re just going to have a broader portfolio,” GM CEO Mary Barra told Barron’s recently.
After a slower-than-hoped-for start in electric vehicles, things are looking up. GM just unveiled its ultraluxury Cadillac EV, dubbed Celestiq, and is showing off the Cadillac Lyriq SUV, priced like Tesla’s Model Y. Those models join the Chevy Bolt, Silverado, Blazer, and GMC Hummer truck.
That’s an impressive lineup—one worth paying an ultralow price to own.
Write to Al Root at [email protected]