Market Response to Trump’s Treasury Appointment and GM Stock Dynamics
President-Elect Donald Trump’s choice of billionaire hedge fund manager Scott Bessent as the next Secretary of the Department of Treasury garnered a positive response from the markets yesterday, with the S&P 500 and Dow Jones indexes hitting new highs.
In contrast, auto stocks faced significant declines on Tuesday due to Trump’s plan for a 25% tariff on imported goods from Canada and Mexico. This move threatens to undermine the USMCA (United States-Mexico-Canada) free trade agreement, with General Motors GM expected to bear the largest impact.
General Motors operates extensively in North America, which led to an 8% drop in GM shares during today’s trading session. However, some investors may view this decline as a possible buying opportunity since GM reached a 52-week high of $61 a share this week and has maintained over 50% gains year-to-date.
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GM’s Robust Financial Outlook
General Motors’ recent stock high is largely attributed to the company’s strong financial performance. Total sales are projected to increase by 5% in fiscal 2024, setting a new record of $180.02 billion according to Zacks estimates. Even though GM’s top line is expected to decrease by 2% the following year, it will still be the largest U.S. automaker by revenue, surpassing Ford F and Tesla TSLA, which are forecasted at $174.28 billion and $99.65 billion respectively for FY24.
Moreover, GM is on track to achieve a record profit this year, with earnings expected to rise 34% in FY24 to $10.29 per share, compared to $7.68 last year. Earnings for FY25 are anticipated to grow an additional 2%.
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Valuation Perspectives on GM
A key factor for considering General Motors as a buy-the-dip option is its valuation. GM is currently trading at 5.8 times forward earnings, significantly lower than the S&P 500’s 25.3 times and the average for its Zacks Automotive-Domestic Industry at 13.1 times. In contrast, Ford trades at 6.2 times, while Tesla is considerably higher at 137.2 times.
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As the leading domestic automaker by revenue, GM trades at just 0.3 times sales, while the industry average stands at 1 times, and the S&P 500 at 5.4 times.
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GM’s Electric Vehicle Expansion
GM’s push into the electric vehicle sector has been particularly compelling for long-term investors. The company’s sales of electric vehicles, primarily driven by the Chevy Equinox EV, surged by 192% in Q3 2024, totaling 32,095 units sold compared to 11,006 units in the same period last year. Currently, GM has overtaken Ford in total EV sales in the U.S., following Tesla.
Image Source: GM.com
Conclusion
As General Motors heads towards a potential record year, the stock appears to be an appealing buy-the-dip opportunity, especially with a Zacks Rank of #2 (Buy). However, investors should closely monitor revisions in earnings estimates for FY25, as some analysts warn that proposed tariffs could impact GM’s profit margins by 2% or more.
Notably, this tariff proposal may be part of a larger negotiation strategy for Trump, given the long-standing free trade agreements in place since 1994 among the U.S., Canada, and Mexico.
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