When you think of companies pushing the frontier of automotive technology, General Motors Company (NYSE:GM) is probably not the first one that comes to mind. But that doesn’t mean the century-old company can’t find ways to be innovative. In fact, there is one catalyst that could bring GM stock back to the center stage.
Huge Catalyst for GM Stock?
I’m talking about autonomous driving technology, something more often associated with Tesla Motors Inc (NASDAQ:TSLA), Alphabet Inc (NASDAQ:GOOG), and Apple Inc. (NASDAQ:AAPL). Although GM isn’t really known for its development of driverless cars, its recent acquisition of Cruise Automation Inc. could change the industry’s landscape.
Earlier this month, GM announced that it would acquire San Francisco-based Cruise Automation. The technology startup was known for retrofitting existing vehicles with autonomous-driving software. Cruise’s technology kit could turn any Audi “A4” or “S4” sedan into an autonomous vehicle. (Source: “GM to Acquire Cruise Automation to Accelerate Autonomous Vehicle Development,” General Motors Company, March 11, 2016.)
Cruise raised $18.8 million in its latest round of founding. GM did not reveal how much it paid for the company, but sources said the deal was valued north of $1.0 billion in cash and stock.
The good news is that in just a few weeks after the announcement, the deal received antitrust approval from the Federal Trade Commission. (Source: “U.S. Gives Antitrust Approval to GM’s Purchase of Cruise Automation,” Reuters, March 28, 2016.)
After being bought by GM, Cruise won’t be retrofitting Audis anymore. Instead, it will focus solely on creating autonomous driving software for GM cars. Cruise will operate as an independent unit within GM’s Autonomous Vehicle Development Team and continue to be based in San Francisco.
Buying the tech startup is a great move for the automotive giant. GM already knows how to build cars. All it needs to make its cars autonomous is to add software and Cruise Automation does just that.
Of course, we probably won’t see driverless cars roaming the streets anytime soon. So the acquisition is more of a future catalyst. But even after you take out the autonomous cars segment, there is still a lot going for GM stock.
You see, GM has climbed out of the doldrums. In 2015, the company generated record net income of $9.7 billion. Its adjusted earnings per share surged 65% year-over-year to $5.02. (Source: “GM Reports Record Net Income of $9.7 Billion and Record EBIT-Adjusted of $10.8 Billion for 2015,” General Motors Company, February 3, 2016.)
GM stock bears would argue that the company’s success doesn’t mean much because 2015 was a record year for U.S. car sales. What if the industry heads south this year?
GM believes that it will be fine if the U.S. auto industry takes another downturn. The company’s CFO, Chuck Stevens, said that even if U.S. auto sales fall from 17 million units in 2015 to between 10 million and 11 million units, GM could still break even. (Source: “General Motors Mary Teresa Barra on Q4 2015 Results—Earnings Call Transcript,” Seeking Alpha, February 3, 2016.)
The Bottom Line on GM Stock
At the end of the day, keep in mind how inexpensive GM stock is. Trading at $30.60 per share, the stock has a price-to-earnings multiple of 5.18. Moreover, the company also pays dividends, with a quite handsome yield of 4.91%.
If you want to invest in the automotive industry, GM stock is definitely worth looking at.