After a year of restructuring and bankruptcy protection, General Motors Company (NYSE/GM), or GM, has steadily improved its operational efficiency and ability to compete in the global auto market, specifically in China, where GM is the top foreign automaker. The weird thing is that the Chinese seem to like GM vehicles; too bad they still are viewed as inferior here.
The new GM stock debuted at $34.00 in November 2010 before moving to $45.00, but this was followed by a subsequent decline to the current low $20.00 level. Yet there is value with GM. Based on the estimated earnings of $3.74 in 2012, GM is trading at a price-earnings multiple of 6.53X based on the prevailing stock price of $24.49 on January 18. U.S. rival Ford Motor Company (NYSE/F) is trading at 7.84X its 2012 earnings per share (EPS), while Japanese leader Toyota Motor Corporation (NYSE/TM) trades at 9.29X its fiscal 2013 EPS.
However, General Motors is looking beyond the U.S. for its growth, specifically the company’s growing position in China’s massive auto sector, which has softened somewhat over the past year. Nevertheless, it continues to be the world’s largest auto market, with an estimated 14.5 million vehicles to be sold in 2011 versus about 12 million in the U.S. And with only about one in five Chinese owning a vehicle in Beijing and 30 of 1,000 in remote provinces, there is clearly ample room for growth, especially as the income levels continue to rise. In spite of mere 2.5% growth in 2011, industry pundits predict auto sales will rebound in 2012 with estimated growth of five percent to 10%.
Foreign auto companies looking for growth are expanding in China. General Motors may return to number one for automakers in 2011 driven by strong growth in China.
General Motors reported an 8.3% year-over-year rise in sales in China to a record 2.55 million vehicles in 2011, down from 29% in 2010, but well above the average. China accounts for about 36% of total GM sales in 2011, so the region is critical for growth.
So, while the GM story is encouraging in China, I continue to prefer the smaller Chinese auto-parts suppliers that provide parts and services to foreign and domestic automakers.
Two small-cap Chinese companies to take a look at include China Automotive Systems, Inc. (NASDAQ/CAAS, $5.19) and SORL Auto Parts, Inc. (NASDAQ/SORL, $2.47). Note that these are not recommendations to buy; just an example of stocks to look at.
You can buy GM as a longer-term holding, but I prefer to stick my capital in the small-cap Chinese auto plays for added growth and price appreciation potential.
Housing is showing signs of improvement, but it will be a while until the stock market is considered healthy. I discussed in What’s Really Driving the Housing Market.