Managing Director Scott Blasdell of J.P. Morgan Asset Management says the main attraction of General Motors Company (GM) has been valuation and the continued improvement in its operations and reputation.
As you know, General Motors acquired new leadership after its bankruptcy restructuring during the financial crisis. Under the new management, they’ve been making very good progress improving the company. They’ve been reinvesting in the product.
We have seen a lot of new models coming out, and the reviews are good. It is still early in the turnaround of the Cadillac division, but new management there is terrific.
Blasdell says GM is also well-positioned in the pickup-truck market, which is doing well as gasoline prices have come down.
Importantly, the company is resisting adding to capacity, which historically undid the industry in prior cycles.
We think the company could earn close to $4 in a normal environment and is trading at about 8.5 times that number. Because the automobile industry had such a horrific experience in the last recession, we might need to see the company go through another recession to prove that it’s a better company this time around. But we’re comfortable owning it at these valuations, waiting for that payday to come.
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