is-gm-stock-a-buy?-general-motors-has-380%-upside,-analyst-says

Is GM Stock A Buy? General Motors Has 380% Upside, Analyst Says

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GM stock broke out to its first record high in more than three years on Jan. 12 as General Motors (GM) surprised Wall Street by revealing the existence of BrightDrop, its EV commercial delivery vehicle and logistics startup that already boasts FedEx (FDX) as a committed customer. The surge continued as Microsoft (MSFT) invested in GM’s Cruise autonomous vehicle unit.

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While GM stock has come off its highs, the pace of GM’s corporate reinvention continues apace. On Wednesday, GM announced a partnership with Navistar (NAV) that will see it supply Hydrotec fuel cells for long-haul trucks.

The automaker said Thursday that it will stop producing diesel- and gas-powered cars by 2035. Meanwhile, GM will air two 60-second ads during the Super Bowl. One will feature its Cadillac Lyriq Crossover EV, due out in the first half of 2022 with an all-glass roof. The other, highlighting GM’s broader shift to EVs, will likely show off its 2022 Chevy Bolt and Bolt Utility Vehicle and its Hummer EV. The latter, out this fall, will be GM’s first vehicle based on its new Ultium electric battery architecture.

Now Wall Street is recognizing the extent of General Motors’ transformation by valuing GM stock more like an EV or AV play. On Friday, Morgan Stanley analyst Adam Jonas hiked his price target for GM stock to 80 from 57, reflecting a sum-of-the-parts valuation. Jonas said the increasing value of the new parts has much more than offset the decreased value of the old.

GM is set to report Q4 results on Feb. 10. General Motors’ profitability shifted into overdrive in the back half of 2020, helping finance an accelerated transition to EVs. So is now a good time to buy GM stock?

GM Stock Priced Like An Underdog

GM says it’s headed for the front of the EV pack, yet it’s still priced like an underdog.

As of Jan. 29, GM stock had a $73 billion market cap, compared to $752 billion for Tesla (TSLA), despite having roughly four times the sales in the third quarter.

Yet those sales of vehicles with internal combustion engines come from a business which GM will phase out by 2035.

In November, GM CEO Mary Barra ended speculation stirred by Wall Street analysts that GM might spin off its Ultium electric vehicle operations to get a more proper valuation. “Our integrated strategy is a competitive advantage for GM,” she said.

Yet as GM funds itself mainly through profits, pure-play EV automakers, including Tesla and a host of Chinese rivals are building up huge EV war chests by issuing stock. Meanwhile, Toyota (TM) and EV battery startup QuantumScape (QS) have recently highlighted their separate progress toward a solid-state EV battery that has potential to offer faster charging, longer distance and greater safety.

Apple (AAPL), with far greater resources, also is working toward its own EV battery breakthrough and could reportedly produce an electric, autonomous vehicle in 2024. In early January, Hyundai confirmed that it’s in talks with Apple regarding electric vehicles. But any such Apple EV car would be years away.

It’s hard to know where GM stands in the EV hierarchy, because such big technology breakthroughs may not be ready for the production line until mid-decade or later. Meanwhile, GM also has made some head-turning claims about its next-generation EV battery.

EV Transition

On Nov. 19, GM mapped out its road to launching 30 EV models globally by 2025, while topping its prior goal of 1 million EV sales and achieving big EV battery cost-reductions and efficiency gains.

Barra said GM will realize $2 billion in cost efficiencies from shared engineering, manufacturing, marketing and corporate cost. Cash flow from GM operations will fund an accelerated $7 billion in EV investment through 2025, while still allowing General Motors to reinstate its dividend in 2021.

Barra also said that GM’s flexible Ultium EV architecture has helped cut vehicle development time by nearly 50%. She said the launch of the Cadillac Lyriq SUV had been moved up about nine months from the date initially announced. GM will speed up the launch timing of 12 EV models, some by as much as 40 months.

“We’re committed to fighting for EV market share until we are number one in North America, achieving margins similar to or higher than our ICE business and exceeding our previous target of selling 1 million vehicles globally by mid-decade,” Barra said.

GM Stock Chart Technical Analysis

GM stock soared in October and November on the Hummer EV launch and stepped-up EV factory and production plans.

Shares then reversed as much as 13%, including a 2.7% drop in Nov. 30’s stock market action on a scaled-back deal with Nikola. Yet GM stock twice found support at its 10-week and 50-day line. IBD SwingTrader took advantage of an early entry point, establishing a position as GM stock cleared its Dec. 23 intraday high that came on the first bounce above its 50-day line.

On Jan. 12, GM stock broke through a more traditional 46.81 buy point, 10 cents above its Nov. 24 high. General Motors stock jumped 6.2% to close at 47.81, breaking above the October 2017 all-time high of 46.76.

GM stock stayed in the fast lane amid news of Microsoft’s investment in Cruise. After reversing lower on Jan. 21, GM stock found support at its 21-day moving average on Jan. 27. Shares rebounded the following session with the broader market and GM’s announcement to be fully electric by 2035. GM stock is still extended beyond a buy zone that runs through 49.16. Chasing a stock beyond that zone comes with higher risk.

As of Jan. 29, GM stock sported an 88 Relative Strength Rating, meaning it has outperformed 88% of all stocks over the past 12 months.

The relative strength line, which shows how GM stock performs vs. the S&P 500 index, has come off its recent high, but the technical picture has improved dramatically since July, when GM’s RS line hit a historic low.

General Motors Earnings And Sales Trends

General Motors earnings haven’t seen steady growth in the past couple of years, as auto sales peaked in the U.S. and hit a pothole in China. A UAW strike hurt results in the second half of 2019. Then Covid-19 marred the first half of 2020.

However, everything seemed to fall into place in Q3. General Motors earnings per share surged 65% to $2.83, as GM “showcased the benefit from its deep structural cost reductions,” Deutsche Bank analyst Emmanuel Rosner said. Revenue of $35.5 billion was flat from a year ago and in line with estimates.

GM sales remained on a roll in Q4. GM deliveries in the U.S. rose to 771,323, up 5% from a year ago. General Motors said it gained market share as the average transaction price rose to a record $41,886.

General Motors appears well-positioned in the U.S. market, seeing demand for pickup trucks and crossover SUVs.

Meanwhile, GM sales in China remained on the upswing for the second straight quarter, after a weak couple of years. General Motors and its Chinese joint-venture partners saw deliveries rise 14% to 954,325.

BrightDrop

BrightDrop’s first 500 EV600 delivery vehicles, which go 250 miles per charge, will go to FedEx (FDX). The global delivery giant also has tested BrightDrop’s EP1 pallet electric pallet, designed to move up to 200 pounds in goods over short distances. FedEx said its drivers were able to handle 25% more packages per day in the first pilot.

GM said it will invest $800 million to equip one of its factories in Canada for production of the EV600 by late 2021.

GM said it sees a massive $850 billion market opportunity for parcel, food delivery and reverse logistics in the U.S. by 2025.

The timing of its commercial EV rollout looks even better following President Joe Biden’s executive order to replace the government’s fleet of 645,000 vehicles with electric vehicles. About one-third of those belong to the U.S. Postal Service, which might be a logical customer for GM’s new delivery van.

Ford (F) will also have an electric version of its popular Transit van out in late 2021. Workhorse Group (WKHS) and Rivian are EV delivery van plays too.

GM’s ‘Stable Of Unicorns’

Even before the BrightDrop news, Morgan Stanley’s Jonas had referred to GM as having a “stable of unicorns.”

Beyond consumer and commercial EVs, GM has a controlling stake in Cruise, its autonomous vehicle startup. GM’s Ultium EV battery also has become something of a business in its own right. In April, GM reached a deal with Honda Motor (HMC) that will see it jointly develop two electric vehicles for the Japanese automaker using GM’s Ultium battery.

On Nov. 30, GM announced revised terms of a deal to supply fuel cells to Nikola’s heavy-duty trucks. The deal opened up another potential market opportunity for GM. However, prospects remain clouded by Nikola’s reputational hit as its founder left the company amid allegations of being a huckster and worse. Yet GM’s deal to supply Navistar with its Hydrotec power cubes includes more seasoned partners.  Trucking firm J.B. Hunt (JBHT) will be Navistar’s first customer in a pilot program, with tests set to begin by end of 2022.

In June, GM Defense unit won a $214-million contract — its first win — to build Infantry Squad Vehicles for the U.S. Army based on the Chevrolet Colorado ZR2 midsize truck architecture.

GM’s OnStar communications and security system, which has announced a move into the insurance business, and its Super Cruise driver assistance technology, offer growing opportunities to grow a monthly recurring revenue model.

At the January Consumer Electronics Show, GM showed off a model it has designed of an electric flying car to target the air mobility market as it develops over the next decade or more.

Hummer EV Buzz

GM unveiled the Hummer EV truck during the World Series, touting “maneuverability and traction unlike anything GM has ever offered.” The Hummer’s CrabWalk mode, allowing it to move diagonally to get through tight off-road spots, quickly went viral.

The Hummer EV, which will take on the Tesla Cybertruck, is due out this fall. GM says the Hummer EV can travel 350 miles on a full charge and reach 60 miles per hour in three seconds. The Hummer also will take on upcoming electric trucks from Ford (F) and Amazon (AMZN)-backed Rivian.

The Rivian RT1 will likely be released before the GM Hummer, but the Tesla Cybertruck will likely not be out until 2022.

Prices for the initial Hummer EV version start at $112,595. General Motors said all available reservations for the Hummer EV sold out within 10 minutes. GM reportedly received 10,000 pre-orders and is considering boosting production plans.

GM plans cheaper Hummer EV versions in future years.


Is Ford Stock A Buy Now?


General Motors’ Ultium Battery Future

GM had a puzzle to solve: How could it compete broadly in the still relatively small EV market, en route to an all-electric future, without frittering away its financial strength? The answer came with the March 4 unveiling of its Ultium battery and flexible platform.

The Ultium stands apart for its ability to be stacked either vertically or horizontally in the battery pack, to optimize the layout of each vehicle. The biggest stack is said to have the power to reach 450 miles on a full charge. The platform can accommodate a wide range of trucks, SUVs and cars.

The first generation of GM’s coming EV lineup “will be profitable,” the company said. Since then, GM has detailed a much more complete vision of its EV future.

In September, GM unveiled its strategy to produce electric drive systems that are designed in-house to deliver cost and performance benefits. The five drive units and three motors will offer the power and versatility to work with the full range of some 20 different EVs it plans to produce by 2023.

Ultium Drive systems will be more responsive than current models offer, using “precision torque control” for  smooth performance, GM said.

The Honda deal created a partnership model that GM hopes will entice other rivals. Barra said that supplying GM technology to rival automakers would build “scale to lower battery and fuel cell costs and increase profitability.”

Now GM is highlighting progress in testing its next-generation Ultium battery chemistry. “We believe we are on the battery-cost frontier today and we intend to set the pace for the future,” said GM product development chief Doug Parks.


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GM Cruise Vs. Tesla And Alphabet Waymo

On Jan. 19, GM announced a partnership with Microsoft to accelerate the commercialization of self-driving vehicles. Microsoft joined in a $2-billion funding round for Cruise, along with GM, Honda and institutional investors.

The investment gave Cruise an implied $30 billion valuation, up from $19 billion in May 2019. GM’s stake is now worth $19 billion, up from $11.9 billion, JP Morgan analyst Ryan Brinkman figures.

The funding news follows a series of positive announcements, after earlier setbacks. In November, Cruise began testing five driverless cars in parts of San Francisco.

“We’ll be the first doing it in a complex urban environment,” Barra said on the Q3 call. That’s where the ride-sharing “opportunity for profitability” lies, she says.

On Nov. 10, Walmart (WMT) announced a pilot test with Cruise in Scottsdale, Ariz., allowing contactless customer deliveries.

In January 2020, GM unveiled its six-passenger Cruise Origin EV with no steering wheel.

Apple, Alphabet (GOOGL)-unit Waymo, Uber (UBER), Ford (F)  and Tesla are among a large field of well-funded competitors in the autonomous-vehicle market.

Cruise had hoped to launch a robotaxi service in San Francisco late in 2019. GM and others were too optimistic about how fast they could solve what Barra has called “the greatest engineering challenge of our lifetime.” She remains optimistic about unlocking “the multitrillion-dollar market potential” of self-driving cars.

GM bought Cruise Automation for $1.1 billion in 2016. In 2018, Honda agreed to put up $2 billion more over 12 years.

Tesla, meanwhile, has released a new Full Self Driving beta version to select drivers. But despite the name, Tesla FSD is still a Level 2, hands-on system, while Cruise and Waymo are Level 4.


While Tesla Soars, Electric Cars Face A Huge Test


Is GM Stock A Buy?

After going on its best run since its 2010 post-bailout IPO, GM stock is off its highs, but acting constructively. The technical picture has improved dramatically. GM’s 85 IBD Composite Rating is now solid, though still in the second tier behind Tesla, with a stellar 99 rating. IBD research shows that all-time stock winners often have a Composite Rating of at least 95 near the start of big runs.

Still, fundamental metrics don’t tell the full story. The Covid hit to earnings, a restructuring and strike are all in the rearview mirror. Meanwhile, GM’s traditional business faces a long-term decline. The biggest unknown is how well GM will be able to keep pace with Tesla, which aims to drive down the price of its EVs to $25,000 in three years, and others on the cutting edge of EV battery development — including Apple.

Investors should be aware that GM stock is a hybrid play, depending on profits from gas-burning SUVs today to pave the way to an EV future. Undoubtedly, there is lots of execution risk and uncertainty, but GM appears to be executing quite well, and Wall Street sees plenty of promise developing. If analysts see GM as a “stable of unicorns” with high-growth potential, they could begin to use a more flattering lens for valuing future earnings.

Bottom line: GM stock is not a buy, still modestly extended beyond the 5% chase zone after breaking out to a new high. But the strong technical action, improving fundamentals and a brighter EV future all suggest General Motors stock is worth considering if it sets up again.

Investors may find better buying opportunities in younger, faster-growing companies. To find the best stocks to buy or watch, check out IBD Stock Lists and other IBD content.

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