General Motors stock has not had a good run this year, down 4.80 % YTD. The bearishness is because Investors are concerned about a slowdown in auto sales in the U.S and also a slowdown in international markets such as China. Goldman Sachs recently downgraded the stock to neutral and set a target price of $40. The stock is currently trading around $33.00
All this pessimism has created a buying opportunity for long-term value investors. The stock currently has a forward P/E of 6.5, compared to Ford’s forward P/E of 7.9. General motors has a very healthy balance sheet with a cash balance of over $22 billion. Maintaining healthy balance sheet is a top priority for management. Management has emphasized that they will continue to buy-back stock and pay a very healthy dividend. GM currently has a dividend yield of over 4%.
Several well known investors and hedge funds have continued to add to their GM stake including Warren Buffet’s Berkshire Hathaway. Martin Whitman manager of the Third Avenue Value Fund, also known as a “buy and hold” value investor also recently bought GM stock. Whitman purchased 92,700 shares for an average price of $35.67 per share.
Analysts predict that GM can earn $5 per share in 2016. The future always uncertain but if the analysts are right, and the stock trades at a multiple of 10, the stock price would be around $50. A multiple of 9 would price the stock around $45. The stock has the potential to appreciate over 30% in the next 1-2 years, a very healthy return While investors wait for the price to appreciate, they can enjoy a healthy dividend of over 4%. Patient investors will be rewarded.