U.S. automakers have rebounded nicely since the government had to bail them out. And like a decade ago and well before that, General Motors (GM) remains America’s best-selling car manufacturer. Why, then, has GM stock failed to get in gear?
Truth be told, GM has never been a great stock, no matter how many cars it has sold. The company went public in November 2010 at $34 per share. This morning GM stock opened at $28 per share.
That’s an 18% loss in what has primarily been a bull market until recently. (The dividend only adds another six percentage points onto the total return.) Meanwhile, the S&P 500 is up 75% in that time.
It’s a bit of a head-scratcher, really. On paper, GM has a lot going for it: With more than $3 billion in domestic sales last year, it’s still the top-selling automaker in the U.S., outpacing the likes of Ford (F), Toyota (TM) and Honda (HMC). Net income and per-share earnings growth has been on fire for the past four quarters.
And yet, Wall Street isn’t interested.
Why? For starters, sales have stagnated, stuck in the same $150 billion to $155 billion range since 2011. Though the company has cut costs enough to grow profits at such a torrid pace, the fact is sales haven’t budged for the past four years — a time when global auto sales have grown 17%.
Sure, GM is still top dog in the U.S. Globally, however, Chevy Suburbans and GMC Sierra no longer hold the same appeal in a world that is shifting rapidly away from the big gas guzzlers. Only one GM model cracked the top 10 in global sales last year — the Chevy Silverado, at No. 9, trailing the more popular Ford F-Series. Three Toyota models made the list, Ford had two (including the F-Series), and even much-maligned Volkswagen had two.
GM markets itself as being the quintessential American car company. Most of its commercials feature guys in Levi jeans and cowboy boots driving across a river or up to get a closer view of the Grand Canyon. Clearly, that strategy works in America, as evidenced by GM’s long-standing perch atop the U.S. auto sales heap.
But is GM too American? Do its cars and trucks cater too specifically to Americans’ tastes? The numbers say yes. In the fourth quarter of 2015, North American sales generated nearly all of GM’s profits. That’s bad news for GM stock
Now that some industry analysts insist that the U.S. auto industry is on the brink of another downturn, GM’s American-centric brand is hurting it even more.
Auto Industry Dragging GM Stock Down
Here’s the real kicker, though: While the struggles in General Motors stock stand out for plaguing the company ever since it went public, the truth is no automaker has made for a good investment over the past five years.
Shares of Honda (-42%), Ford (-28%) and Volkswagen (VLKAY) have fallen even further than GM stock during that time, while Fiat Chrysler’s (FCAU) stock (-4%) is also down. The only real “winner” among the big auto stocks has been Toyota, up 38% in that time — and even that trails the S&P 500 by a very wide margin.
So perhaps I’m psychoanalyzing GM too much. Maybe the real problem with GM stock isn’t the company itself, but the entire auto industry. Auto stocks simply haven’t fully recovered since the double whammy of the global recession and government bailouts here in the U.S.
Investors still don’t trust them — or the industry as a whole.
Thus, I would avoid the sector altogether. It’s tempting to buy GM stock based on its gangbusters profit growth, ongoing share buybacks, very attractive yield (5.3%) and bargain-basement valuation (current P/E: 4.7). But it’s had those things going for it for quite some time, as have several other big-auto stocks. None of them prevented GM from falling 25% in the last 12 months.
It’s volatile out there, and that means you should choose your investments very carefully. I can’t recommend carving out space in your portfolio for a beaten-down stock in an out-of-favor industry.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
