Up 27% This Year, Will The GM Rally Continue?

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GM: General Motors logo
GM
General Motors

General Motors (NYSE:GM) stock has fared well this year, rising by about 27% since early January. This compares to rival Ford stock (NYSE:F), which has seen its stock remain roughly flat over the same period. So what’s driving the gains in GM stock and can the rally hold up?

The demand and pricing environment for gasoline-powered vehicles has been favorable leading to a stronger financial performance by GM. The automaker posted a better-than-expected set of Q1 2024 results with net income up 24.4% year-over-year to $3 billion, while revenue rose 7.6% to $43 billion driven by higher sales of its high-margin Chevrolet and GMC brand pickups and SUVs. GM’s new deal with the United Auto Workers last November is also apparently having a softer-than-expected impact on earnings thus far.  While wages increased about 11% when UAW approved the new contract,  GM actually raised its adjusted pre-tax profit projection for the year to $12.5 billion to $14.5 billion, from its previous range of $12 billion to $14 billion.

That said, there are some concerns for the automotive market. While consumer prices in the U.S. have been rising, with the CPI up 3.4% in April, prices for cars have been on the decline.  New car prices fell 0.4% in April and 0.4% from the prior year, marking the third straight month of declines per data from the BLS (Bureau of Labor Statistics). Used car prices declined 1.4% in April and 6.9% from the prior year. This could translate into lower pricing and profitability in the interim for the likes of GM, which saw strong increases in average selling prices in recent years. Demand could also cool a bit in the near term as consumer confidence in the U.S. weakens. Per data from the Bureau of Economic Analysis car and light truck sales for April stood at an annualized rate of 15.7 million units, down from 16.1 million in December. The pre-pandemic number was typically above 17 million units.

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Now GM stock has witnessed gains of 15% from levels of $40 in early January 2021 to around $45 now, underperforming the S&P 500 which remains up about 40% over this roughly 3-year period. In comparison, Amphenol Corporation stock (NYSE:APH), a company that makes electronic connectors, has been a big beneficiary of the electrification of the auto industry, with its stock rising by over 2x over the same period. Turns out, APH is part of the 30-stock Trefis High Quality (HQ) Portfolio, which has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the uncertain macroeconomic environment with elevated interest rates, could GM face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Although there are concerns about the broader automotive market, there are some positives for GM. While the slow pace of GM’s EV transition was a headwind for the stock previously,  this could ease a bit. The EV market has been slowing down, with demand cooling and stock prices of key EV bellwether Tesla down by almost 30% this year. Slower growth in EV demand could give players such as GM more time to monetize gas-based vehicles while investing in long-term electric vehicle developments. GM’s stock also looks fair at current levels of about $31 per share or under 5x consensus 2024 earnings. We have a $45 price estimate for GM, which is roughly in line with the current market price. See our analysis on General Motors Valuation: Expensive Or Cheap for more details on what’s driving our price estimate for GM. For more information on GM’s business model and revenue trends, check out our dashboard on General Motors Revenue: How GM Makes Money.

Returns Jun 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 GM Return 1% 27% 31%
 S&P 500 Return 1% 12% 138%
 Trefis Reinforced Value Portfolio 1% 5% 648%

[1] Returns as of 6/6/2024
[2] Cumulative total returns since the end of 2016

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