General Motors Company (NYSE: GM
At the start of this month, Morgan Stanley gave GM a Buy rating. This is consistent with UBS' Buy rating given to the stock in May. UBS believes that GM will be the biggest beneficiary of inventory shortages in the Japanese market. RBC Capital Markets is also bullish on the scrip, giving it a rating of Outperform this month.
GM is the world's second largest automobile company and rules the roost in the U.S. home market. Analyst Adam Jonas at Morgan Stanley believes "Market expectations and share prices have fallen sufficiently to offer a significantly improved next 12-month risk-reward outlook for North American auto stocks, and we see widespread concerns about systemic and sector-specific risks as a buying opportunity." Specifically, Jonas said he believes GM is the best bet in the sector.
GM offers more discrete catalysts, such as being the likely target of UAW negotiations and resolution of U.S. Treasury overhang that could help trigger out performance through the end of the year. Additionally, a strong product cadence at GM, along with an accelerated launch schedule, should bolster the performance of the stock. Two models, in particular, to keep an eye on: the Chevy Sonic subcompact and the Buick Verano luxury compact.
"As GM itself has proven, you cannot win in this industry by cutting costs over and over again," Jonas said. "If auto companies do not make good cars that people want to buy at a decent price, they will go away." GM shares are still down about 15 percent since the beginning of the year. Jonas carries price targets of $50 for GM. Most other analyst's have set a price target ranging $41 to $48 for the stock. GM currently trades at a price of $29.24.
Most analysts have also given the stock a thumbs up on the basis of earning's estimates. In the last quarter, GM reported earnings of $1.19 per share. Although this quarter earnings are expected to be lower at 94 cents a share, the picture becomes rosier when we look at consolidated annual earnings. Analysts expect the company to report earnings of $3.98 for the year ending in December. For 2012, earnings are expected to be in the region of $4.84 per share. Long term growth is projected at 10.72 percent.
This translates into an earnings growth of 31.35 percent for the current year compared with the expected growth rate of 17.4 percent for the industry as a whole. The stock also enjoys a lower price/earnings ratio compared with the industry average of 8. This suggests an imminent upside in the stock's price in the near future.