General Motors (NYSE: GM) Stock Firing on All Cylinders

It's been a long, hard road for General Motors Co. (NYSE: GM) since the depths of the Great Recession pushed the legendary automaker toward bankruptcy.

But over the past year or so, it's become clear that the company has turned the corner, and GM stock has not only lost the taint of a loser - more and more, it's taken on the shine of a winner.

You see, after GM was pushed to the brink and survived, it emerged leaner, meaner, and smarter.

Now GM is ready to drive into the future, propelled by the following six major "cylinders."

Cylinder No. 1: The U.S. Government No Longer Owns GM Stock

The politically controversial TARP program certainly helped keep General Motors afloat in its hour of need, but it tarnished the company's image and ultimately cost taxpayers $10.5 billion when the government recently sold its last shares of General Motors stock.

Whether TARP was a good idea will be up to historians, but the stigma of being tagged as "Government Motors" can now fade into history - and that's good for GM stock. With its public image on the mend, customers will be increasingly comfortable buying GM vehicles going forward.

Cylinder No. 2: Cutting Costs at General Motors

One major reason GM was able to leave governmental control behind was its ability to cut costs from top to bottom. For automakers, this is especially difficult and daunting because of all the moving pieces necessary to assemble a final product.

Yet GM was able to lower labor costs, reduce and refinance debt, and tackle and solve redundancies in the supply chain. Now, not all of these issues are completely in the rear view mirror, but they are part of a new atmosphere at General Motors.

GM has sought to tackle redundancies elsewhere as well. 

GM owns German-based Opel, which has a strong following in the European market - albeit presently an abysmal European car market due to the struggling economies there.

GM's attempts to establish its Chevrolet brand in Europe have proven very costly and have met with little success, but part of that is because of the success of the Opel brand. Finally, this month, GM pulled Chevrolet from Europe to focus entirely on the Opel brand.  That's the kind of tough decision making and improved focus that has helped return the company to profitability.

Other hard choices GM has made recently include the abandonment of vehicle and engine manufacturing in Australia and preliminary moves to engage in what it believes will be the next booming auto market - Indonesia.

Cylinder No. 3: Popular Car Models

Meanwhile, sales in North America are steadily on the rise. Profits rose to $2.19 billion in the most recent quarter thanks to the introduction of some very well-received new models, like the 2014 Chevrolet Silverado and the GMC Sierra pickup truck.

The reputation of American auto manufacturers, long the butt of many jokes, finally has begun to reverse. In July, Consumer Reports magazine named the 2014 Chevrolet Impala as the best sedan in the market - the first time an American car has taken that award. And just a few months later the magazine named the Silverado the best truck.  

Best of all, sales figures have started to reflect this shift in perception. In November, GM delivered its best sales results in six years. The company sold 212,060 vehicles in North America - up 14% versus a year ago.

GM has more vehicles with promise on the way. It plans to expand its North American reach with the 2014 Cadillac CTS, Motor Trend's Car of the Year. And GM expects to deliver a modernized Escalade in the early part of 2014.

Cylinder No. 4: The Return of Dividends

Higher sales have translated into more cash. GM has more than $26.8 billion in cash on its balance sheet and generated $1.3 billion in free cash flow in the most recent quarter (which is up from the $1.2 billion a year ago). Also, analysts are predicting that free cash flow will rise to $5.4 billion in 2014.

This almost certainly assures the re-instatement of a dividend. GM suspended its dividend when it was coming apart at the seams during the 2008 economic crisis. But now, with all that cash available and more coming in all the time, it's time to return some value to the shareholders.

The question isn't really if or even when the dividend will be reinstated, but rather how much will be paid out. 

Some experts estimate a revived GM dividend will range from $0.40 per share to $0.80 per share, depending on whether a share buyback program is part of the mix, and how big that might be.

The only risk here is that some investors may feel the dividend isn't as large as they'd like, thus causing volatility in the GM stock price in the short term.

GM will probably start paying out dividends on the low end of the estimate range and slowly ratchet it up over time. This makes good sense as a PR tactic and is a prudent thing to do as the markets continue to climb to precarious heights. If the market comes crashing down, GM will have a nice cushion to fall back on.

Cylinder No. 5: China

With all the good General Motors news coming out of North America, it's easy to forget that China is actually GM's biggest market. But the news there is just as good.

The China story is not a new one. More and more of China's newly affluent middle class are looking to buy cars. And not just basic point A-to-point B cars, but luxury vehicles.

The one issue for imports to China is a 25% customs duty tacked onto the price, which obviously makes the locally assembled autos more attractive. That's why GM is spending $11 billion through 2016 to build new factories in China that are expected to churn out an estimated 5 million additional cars per year.

GM's sales in China have been a real bright spot, generating $400 million in earnings in the most recent quarter. The company is currently in a tug-of-war with Volkswagen AG (VLKAY) for the crown of being China's number one auto importer. But to be sure, there is room for more than one foreign automaker in the world's most populous nation.

The Chinese luxury car market, with its higher profit margins, is especially coveted by both GM (with its Cadillac XTS models) and Volkswagen (with its Audi lineup). GM, along with its joint venture partner SAIC, is planning to expand Cadillac production in the years ahead. Management believes it will be able to sell 250,000 cars per year by 2020.

Cylinder No. 6: A New CEO

Sound leadership is critical to stock performance, and GM is set there as well. The company is about to make history with Mary Barra as the first-ever female chief executive officer of a major automaker. While she'll get a lot of attention for making it to the top in such a male-dominated industry, that's just a distraction from why she really matters - Barra is a person who knows how to get the job done.

Want proof?

She had a major hand in all of the positive developments described above. She wore many different hats as she climbed up the corporate ladder at GM. She came up through the ranks as an engineer, and as such was in charge of both the engineering and design of many of GM's most acclaimed vehicles on the road today. Much of the look and feel of GM's current lineup is directly due to her guidance.

She also consolidated GM's extremely complex supply chain and cut through a lot of the red tape in Human Resources.

Put all these factors together and you can see General Motors is a finely tuned engine of profits.

GM stock, up 40% on the year, has already enjoyed some of the benefits of these positive changes. Under normal circumstances, a 40% move would have me rethinking whether I'd be a buyer at these levels. But in GM's case, with all its cylinders firing, the amount of risk seems appropriate for the potential reward. So I would BUY NYSE: GM.

About the Author: David Mamos brings nearly 15 years of analytical experience to the table, with a background ranging from big-picture fundamental analysis to highly technical trading decisions. He began his career working as a financial advisor with Royal Alliance in 2001 and helped clients with portfolio management as well as buy-sell decisions before transitioning to the development, implementation, and execution of trading strategies for aggressive investors.

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