General Motors is no stranger to problems with overseas divisions. Even before the Venezuelan government seized its only production plant in that country, GM was already pondering becoming the next major company to exit the country. Several companies were leaving. Business conditions had deteriorated there for everyone.
While the potential loss of assets would ding the bottom line, the Venezuela issue does not seem to be a major problem for General Motors stock, which actually rallied the day after the seizure news.
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Some reports say that the last car rolled off the line there in 2015, and even before that Venezuelan production contributed a miniscule amount to global output. Indeed, GM was already shifting its efforts to more lucrative parts of the world.
General Motors struck a deal last month to sell its money-losing Germany-based Opel-Vauxhall division, effectively leaving Europe completely. It sold Saab in 2010.
That left GM ready to exploit the very strong market in China, where it plans to release 10 electric car models by 2020. General Motors and its joint ventures in China delivered a March record of 345,448 vehicles, an increase of 16% from a year earlier. It was the company's largest year-over-year growth since last August.
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The major weak spot has been the U.S. market, where first-quarter unit sales were down 1.5% and used-car values are sinking.
Pundits fear that the "Trump rally" will not delay the expected cyclical downturn in the domestic car market.
However, this is already priced into GM stock. Currently GM shares are down more than 12% from their early March peak.
General Motors Stock Still Has Tremendous Value
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The good news is that there is tremendous value in GM stock at current price levels, from both a fundamental and technical point of view.
You see, while there is more to evaluating a company than a single number, GM's price/earnings ratio (trailing 12-month) is at a historically low level of 5.5. That means for every dollar of earnings, an investor must pay $5.50 to buy the stock.
Compare that to Ford Motor Co. (NYSE: F) at a price/earnings ratio of 9.8. And the full Standard & Poor's 500 at 26.4.
Of course, different types of companies deserve different types of valuations. We cannot compare GM to Apple Inc. (Nasdaq: AAPL) or McDonald's Corp. (NYSE: MCD). However, GM's valuation does make its current stock price seem cheap.
Analysts who follow stock charts would agree, although for different reasons. Over the past few years when GM's price sank to current levels, it became attractive to buyers. That alone is not a guarantee that the stock will immediately rise from here, but it does suggest that demand for shares is likely to expand.
That's bullish, but investors still need to wait for a trigger to unlock that value. Could it be earnings, which are expected to be released April 28?
The good news is that all three major German automakers - BMW, Daimler, and Volkswagen - recently released their earnings ahead of schedule because they exceeded expectations. That bodes well for GM, as well as Ford, which is also expected to report this week.
Considering the size of General Motors and how little it relied on Venezuela, the loss of business and assets there should not be a factor. And if it recovers some assets in the courts, it will only be a positive for the company and for the stock.