General Motors Is Crazy Cheap: 3 Reasons to Buy Shares Now
General Motors' headquarters in Detroit. Image source: Getty Images.
There are certainly some mental roadblocks that need to be surmounted when it comes to the General Motors (NYSE: GM)bull-case thesis, and that's understandable. Many investors can't admit that the current management team is far more effective and when compared to the arrogant, and shortsighted, team from a decade or two ago. Many more simply can't commit to investing in an automaker at a time when new-vehicle sales seem to be peaking in the U.S. market.
But this is 2016, and this isn't your father's automotive industry. So here are three reasons to buy General Motors, now.
Walking the walk
It's probably hard to believe that the automotive industry is on the cusp of changing more over the next five years than it has during the previous 50 years. But GM is putting its money where its mouth is. Its introduction of Maven, acquisition of Cruise Automotive, and its recent investment in ride-hailing application Lyft prove its willingness to try multiple strategies for the future.
Maven could be key to GM's future success. Image source: General Motors.
Maven, GM's umbrella brand that will cover multiple smart-mobility projects, has had a great start. After its initial announcement early in 2016, GM provided an update a few months later, stating that the program had grown to five markets -- New York City, Ann Arbor, Michigan, and then Boston, Chicago, and Washington, D.C. -- and members had already driven more than 1 million miles. The premise in the city program is that Maven will offer members a vehicle in more than 15 sites throughout the market, with rates starting at $8 per hour, including insurance and fuel.
Beyond Maven, GM also invested $500 million in Lyft earlier this year as it laid out plans to create a network of self-driving cars with the ride-hailing company. It's currently possible, through the program Express Drive, for Lyft drivers in Chicago to rent a Chevrolet Equinox crossover for $99 a week.It's a brilliant way to get GM's foot in the door of the ride-hailing industry and to better understand just how viable the business model is, as well as how tough the competition with Uber is.
Last, GM acquired Cruise Automation to help bolster its software talent and accelerate its development of autonomous-vehicle technology -- which is clearly an initiative that Wall Street is keeping an eye on.
Everybody in the automotive industry is talking the talk these days, but GM has made some very large moves and is putting its money where its mouth is. GM understands that the business model of the future won't be just about producing great cars and selling them. It's about providing products and services that simplify the way we travel on a daily basis.
What have you done for me lately?
While these previously mentioned strategies will be critical for investors to reap rewards from a GM investment down the road, right now the company is still about producing and selling vehicles. The good news is that GM seems to be doing so more effectively as seen in J.D. Power's 2016 Vehicle Dependability Study and Initial Quality Study.
These studies are more important than many investors give them credit for. They provide a great way to see brand improvement, as well as individual vehicle strength, and they impact GM's ability to keep its customers loyal to the company.
GM delivered the most segment awards in the Vehicle Dependability Study study, and all four of its brands placed above the industry average, with Buick, GMC, and Chevrolet ranking third, fifth, and sixth, respectively -- a pretty impressive showing. Also, in addition to the overall strength of its four brands, its individual vehicles earned the most top-three finishes.
It's easier said than done, to be sure, but producing excellent vehicles that consumers demand regardless of a slight premium in price is a very profitable way to maintain market share and margins at the same time. These awards and improvements in vehicle quality and dependability show that GM has taken a step toward protecting market share in a more profitable way.
Here's some cash while you wait
It may take some time for Wall Street to get comfortable with the idea of investing in an automaker during peak auto sales in the U.S. market. It will also take quite some time for autonomous vehicles to play out, and for GM to solidify revenue streams from new strategies such as ride-hailing projects.
But, while you wait for these game changers, GM has proven its willingness to deliver value to shareholders through dividends and share buybacks. Earlier this year, GM raised its full-year guidance, as well as increased its dividend and extended its buyback program. GM increased its quarterly common stock dividend 6%, to $0.38 per share, currently yielding roughly 4.75%. The board of directors authorized a $4 billion increase to the existing repurchase program, bringing it to a total of $9 billion, and extended the program through 2017.
"Our commitment to improve our performance in 2016 will build on our strong operating results of the past two years, and support improved shareholder returns," General Motors' CFO, Chuck Stevens, said in a press release.
Again, this isn't your father's auto industry. The rise rise of car infotainment systems and connectivity could provide new revenue streams going forward. Alternative propulsion could open the doors to new market-share leaders, and provide a source of incremental revenue. Autonomous vehicles could set competitors apart from one another, and Uber has shown that technology can take the next great automotive idea into a $60 billion valuation in a mere handful of years.
General Motors' shares are cheap, it has invested heavily into its future, it has improved its vehicle quality and dependability, and it will return value to shareholders through dividends and share buybacks while they wait for these strategies to pay off -- all good reasons to buy GM now.
A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.
Daniel Miller owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.