Looking for Value? Consider GM

By October 14, 2018 Blog


            Critics of this blog point out that almost all the valuations we have posted here reach the same conclusion – the securities in question are overpriced.  The most recent example is the ten bubble stocks.  At Cornell Capital, we agree with the critics.  Most every stock we evaluate, particularly the tech stocks, are either properly or overvalued in our opinion.  But there are exceptions.  As one example, consider GM.
            GM has streamlined operations, reduced the number of brands, improved the quality and design of its cars, cut pension expense, and become a leader in self-driving technology.  Despite all these improvements, GM is currently trading at $31.79, a price more than 10% below where it was five years ago.  Over the same period, the S&P 500 rose almost 60%.  At its current price, the forward P/E ratio is only 5.2.  It is not hard to see why value investors such as Warren Buffett and David Einhorn hold GM shares.  To be sure, GM faces challenges.  As we have stressed in our valuations of Tesla, the automobile industry is both highly competitive and capital intensive.  Nonetheless, it would hard to argue the GM is overpriced.  In our estimation, the fundamental value is significantly more than the price.

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