Categories Analysis, Industrials

Stock Watch: Why General Motors (GM) is a good buy after earnings

For the second quarter, GM reported lower earnings despite a modest increase in revenues

When the COVID crisis battered the business world a couple of years ago, General Motors Company (NYSE: GM) was not spared, though the impact was not as big as initially expected. Being a market leader, the auto giant managed to get back on track quickly but the business now faces new challenges like high inflation and shortage of microprocessors.

After retreating from its peak in the early days of the year, General Motors’ stock stayed on a downward spiral before changing course a few weeks ago and regaining a part of the momentum. The good news, according to experts, is that there is enough room for more gains. As per some estimates, it has the potential to grow by a third and breach the $50-mark by mid-2023.

Is it a Good Bet?

The question is whether the present lows can be considered an investment opportunity. The answer is clear – GM’s successful business strategy would enable it to tackle short-term challenges like the market uncertainty and pandemic-induced supply chain issues. Also, the carmaker has a long history of creating decent shareholder value. The verdict is that if you are looking for a long-term investment with low risk, GM is a good choice.

General Motors Company Q2 2022 Earnings Call Transcript

GM’s second-quarter profit fell short of expectations. — at a time when business conditions seemed to be improving. Interestingly, the earnings miss came after beating estimates in every quarter for over five years. Adjusted income was down 42% from the prior-year levels. Meanwhile, stable performance by the core business more than offset weakness in the GM Financial division, resulting in a 5% rise in revenues to $35.8 billion.

General Motors Q2 2022 earnings infographic

Getting Back on Track

However, the company’s stock was not affected by the not-so-impressive outcome. Market sentiment remained intact due to the bullish outlook issued by the management, which expects that global vehicle production would bounce back in the second half even as business conditions improve and the ongoing semiconductor crisis eases. However, supply chain strains might still drag down the overall performance to some extent.  

Infographic: Highlights of Ford Motor’s Q2 2022 earnings report

GM’s CEO Mary Barra said in a recent statement, “…we have modeled several downturn scenarios and we are prepared to take more deliberate action when and if necessary. Regardless of the circumstances, we continue to move forward from a position of strength. We have a foundation of strong earnings and cash flow, an investment grade credit rating, historically low pension obligations, and outstanding vehicles, services, and pricing. I like our position and I wouldn’t trade it with anyone in our industry.”

In the past six months, GM lost about 20%, continuing the downturn that started in the early weeks of the year. The stock closed the last trading session higher.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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