The General Motors Comeback: Why GM’s Stock Is Too Good to Pass Up Right Now

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General Motors (NYSE:GM), along with Ford (NYSE:F) and Stellantis (NYSE:STLA), is one of the Detroit Three group of American automakers. All three companies experienced financial and operational setbacks due to the United Auto Workers (UAW) strike in October. However, now that General Motors has seemingly resolved its dispute with the autoworkers, investors can expect GM stock to bounce back from its current level.

Suffice it to say October was a rough month for General Motors and for the Detroit Three in general. The autoworkers’ strike just kept dragging on, week after week.

Yet, as the old saying goes, with every crisis, there is an opportunity. General Motors will have to deal with the financial impact of the UAW strike for a while, no doubt. Still, investors now have access to an ultra-cheap stock representing an iconic American automaker with comeback potential.

GM Stock Is Ridiculously Cheap Now

Speaking of ultra-cheap stocks, GM stock recently bounced off its 52-week low, and General Motors is trading at an absurdly low valuation multiple. Specifically, General Motors has a GAAP trailing 12-month price-to-earnings (P/E) ratio of 4.19x. For comparison, the sector median P/E ratio is 15.55x.

You typically won’t see a great value like this unless something scary happens. In this case, the UAW strike’s impact was so deep that General Motors withdrew its full-year 2023 profit guidance. Furthermore, according to a Bloomberg report, General Motors’ management estimated $200 million per week of ongoing costs to the company due to the UAW strike.

That was the main takeaway for some nervous investors. On the other hand, people who panic-sold GM stock may have ignored General Motors’ positive third-quarter 2023 results.

Impressively, General Motors generated $44.1 billion in revenue, beating the analysts’ consensus forecast by nearly $1 billion. Moreover, the company’s quarterly adjusted EPS of $2.28 came in far ahead of Wall Street’s estimate of $1.84.

General Motors Settles Its Dispute With the UAW

At long last, in late October, General Motors became the last of the Detroit Three automakers to reach an agreement with the UAW to end the strike. Granted, it’s only a tentative agreement, and the autoworkers still have to vote to approve it.

I expect the workers to approve the deal with General Motors, especially since UAW President Shawn Fain and President Joe Biden seem to be in favor of the agreement. So, that shouldn’t be investors’ main concern right now.

Instead, investors ought to focus on General Motors’ recovery prospects. Considering the low price of GM stock, it appears that the market has already priced a lot of financial and operational damage to General Motors.

Surely, Barclays analysts understood this when they recently upgraded General Motors shares from “equal weight” to “overweight.” The analysts cited “historically cheap” valuations for Ford and General Motors but preferred General Motors over Ford.

Additionally, the Barclays analysts maintained their price target of $37 on GM stock. This implies fairly strong upside potential from the current share price. The analysts cited General Motors moving past the UAW strikes as a positive factor, and I tend to agree with their upbeat assessment.

GM Stock: It Can Only Get Better From Here

Until the last few days, October was scary for General Motors and its shareholders. Fortunately, the crisis appears to be coming to an end.

As a result of the UAW agreement, General Motors will increase its autoworkers’ wages. However, the market knows this and has likely already priced in the financial costs.

So now, General Motors trades at a very reasonable valuation multiple, and the situation isn’t quite as scary. Therefore, GM stock offers a terrific value, and investors should consider a long position while it’s still cheap.

On the date of publication, David Moadel 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 Publishing Guidelines.

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