GM stock is cheap but still not a buy
More bad news ahead for General Motors (GM) as the public sifts through the 250,000 documents released by lawmakers last week that highlight the carmaker’s 10-year denial of auto-safety problems.
GM CEO Mary Barra is waiting on two more reports that address how to deal with compensation for victims and repercussions for GM. GM reports earnings on April 24, and the outlook may be negative for the first time in four years given the recent recall of nearly 7 million cars.
Related: GM’s image problem worsens
Recent email revelations show that GM senior executives have known about the cars’ switching problems since at least 2011. Barra testified that she did not became aware of the problem until last December.
So what does this mean for the stock? “It’s certainly one of the cheapest car companies in the universe right now,” says David Nelson, chief strategist at Belpointe. “And sometimes buying headline risk like this can be an opportunity.”
Nelson isn’t so concerned about the Barra-GM scandal; instead he worries about the auto industy's fundamentals. “I look at the industry and I ask myself, ‘do I really want to be here in this sandbox?’”
Last month was strong for auto sales; they climbed 3.1%, so why wouldn’t someone want to invest in the industry?
Related: Mary Barra’s strong leadership will lead GM beyond recall drama
“I think the second derivative of that is starting to slow,” says Nelson. “I look at subprime auto loans and we’re back to pre-crisis levels,” he points out.
Yahoo Finance's Rick Newman isn’t so sure subprime auto lending is a bad thing. “Subprime lending is not inherently bad so long as it’s priced right and it’s been coming back in the auto industry far faster than in housing…this has actually helped the auto industry recover,” he says.
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