GM: $100 A Share?
One of the biggest IPOs in US stock market history recently hit investors’ radar screens…
General Motors (GM) shares opened for trading on November 18, 2010. The company raised over $20 billion in their historic IPO.
Of course, there was lots of fanfare running up to the opening of trading…
The IPO was a milestone for the company after it’s massive bankruptcy in June of 2009. As you know, the once mighty auto giant received a controversial government bailout to keep operating while it was restructured.
We talked about the IPO the day before it opened for trading…
Due to high demand and limited release of shares, many investors couldn’t get their hands on GM. I recommended taking a look at Toyota Motor (TM) and Ford (F) as a way to play the IPO, without actually buying shares of GM.
My reasoning was this…
The GM IPO received a warm reaction from the market. Shares had immediate upside potential as analysts gave them a $40 price target. But since competitors had stolen market share from GM during its restructuring, they were due for a move higher as well.
The trade worked out well. Toyota and Ford are both up nearly 9% since GM’s IPO… not bad for a few months work. Shares of GM are up around 8% from its opening day pricing of $35.
But the run for GM’s stock may just be getting started… here’s why.
During its bankruptcy, the company got a major overhaul…
Union contracts were renegotiated and brands were axed. Pontiac, Hummer, and Saturn are no longer a part of GM’s lineup. (Good riddance Hummer…)
In the 17 months under government ownership, GM’s costs were cut to the bone. Compared to the old debt ridden and inefficient GM, the new version is a lean mean auto-making machine.
And now that the economic recovery is taking hold, vehicle sales are rising swiftly. In fact, GM’s December US auto sales posted a 7.5% leap over November… higher than most forecasts.
Year over year sales are looking solid as well…
GM said its December sales were 16% higher than 2009’s numbers. Clearly, the US auto industry is gaining strength.
But here’s where the big potential for GM lies…
They have significant exposure to emerging markets… like China.
In fact, for the first time in the company’s 102 year history, it sold more cars and trucks in China than it did in the US. That’s right, GM sold 2.35 million vehicles in China in 2010. Those sales numbers are 28.8% higher than 2009!
GM sold 136,000 fewer cars in the US. While the difference isn’t much, it marks an important trend for GM sales… and revenues.
As you know, China has a booming economy…
The country recently reported GDP growth of 10.3% for 2010… higher than economists were expecting.
As the Chinese economy continues to develop and grow, more Chinese consumers will be in the market for new cars. With the sheer number of people in China, even if GM captures a small portion of the market, it will mean big bucks for the company… and shareholders.
Others agree…
A Morgan Stanley analyst recently wrote…
“…we believe GM has the potential to one day produce the earnings and cash flow required to justify a valuation closer to $100 than $50.”
If you don’t own shares of GM yet, consider adding it to your portfolio.
This American icon is back… and it means business.
Category: Stocks
