In a Nutshell
- The autoworkers’ strike hammered the stock of all U.S. car manufacturers.
- Now that the strike has been settled, stocks are beginning to rebound and are believed to be undervalued.
- A top analyst gave GM a “strong buy” recommendation.
The first rule of investing in the stock market is “buy low, sell high.” It’s obvious advice, but it may apply when it comes to auto stocks.
A months-long auto workers strike hurt the major U.S. manufacturers, financially, and their stock prices have reflected the pain. General Motors was priced over $40 in August, pre-strike. It has steadily dropped since then, reaching a low of $27.22 in late October. It has rebounded somewhat upon news that the strike has been settled, gaining back more than a dollar. Still, the industry consensus is that GM, along with most other automakers, may be underpriced.
So, does that mean that we’ll see a steady growth in share price over the next couple of months?
Can GM Get To $33.50 by the End of the Year?
The best offshore sportsbooks aren’t so sure. The futures on GM are leaning toward the under. The most recent BetOnline odds (find out more with our BetOnline Review) have lowered the benchmark to $30.50, and it still has better odds on finishing under that price (-140) than over (+100).
Agreement With UAW
The auto workers’ union went on strike at the end of the summer, shutting down key production plants at each of the major U.S. automakers. After years of profit due in part to low labor costs, workers wanted to share in the success, making large demands for salary increases and other benefits. President Joe Biden showed up on the picket line to lend his support to the striking workers.
One after the other, each of the automakers settled with the union in what most analysts considered a victory for the workers. They will get a 25% salary increase over the next four and a half years.
Could Have Been Worse
While the settlement will cost GM and the other manufacturers billions of dollars, analysts seem to believe it could have been much worse, as the steady drop in stock price over the last two months indicated. Labor costs are still a relatively small factor on the company’s balance sheet, and a fairly significant increase was expected when the contract went up for renegotiation.
Ready for a Rebound?
The stocks have begun to shake off their recent losses, and the consensus on Wall Street is that it will accelerate as the market realizes it took too heavy a toll on the share price.
Barclays analyst Dan Levy came out with one of the strongest statements in support of GM to come out recently when he upgraded the stock to a “strong buy” recommendation, saying that GM and Ford were “historically cheap” at the moment. In addition to the boost from settling the labor woes, Levy expects the 2024 fiscal estimates to be better than expected when the company releases them.
GM is currently trading at about four times its estimated earnings for next year, which is the lowest ratio it’s had in more than a dozen years. Levy reads that as an opportunity for significant growth. He set his target price for GM stock at $37, which would be a 30% increase in share price and put the stock far above all betting site over/under cutoffs.
The Pick
Is Levy right? Most of the industry seems to be bullish on auto stocks at the moment, although not all are as optimistic as Levy. Still, more than two-thirds of all analysts have moved GM to a buy recommendation, which is about 11 percentage points higher than the average S&P 500 stock’s buy recommendation ratio. None of the top analysts have the company as a sell recommendation. The analysts’ target price for the stock is also as high as $45, which far exceeds Levy’s target.
There are concerns, including high interest rates which make new car purchases a challenge for most consumers. The impact of fighting in the Middle East on gas prices is also a factor, and there are lingering doubts about the market for electric vehicles, which seems to be growing at a much slower pace than most observers expected.
Still, the stock appears to be headed in the right direction and should be able to hit the mid-30s by year’s end.
Our pick is for GM to end the year over $33.50 with odds of -140 at BetOnline.
