With shares of General Motors Company (NYSE:GM) trading around $30.44, is GM an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
Probably the single-most significant catalyst that moved GM’s stock price in 2012 happened right at the end of the year. On December 19, the U.S. Treasury announced its plan to sell 200 million of the shares it owns in the company at $27.50 a pop. As you’ll see when we look at the technicals section on the next page, this caused a frenzy of trading activity and the stock climbed tremendously.
Sweetening the deal, the Treasury also announced its intent to entirely exit its position in the company in the next 12 to 15 months, subject to market conditions. That sounds like code for “assuming the stock is attractively priced,” and given the fact that it is now trading at a premium to the government’s previous sale, it seems likely that Uncle Sam will walk away from its bailout feeling good.
GM will announce its fourth-quarter 2012 earnings on February 14. Before that, investors should be able to get a peek at the company’s January sales figures, which are expected to be strong.
E = Equity-to-Debt Ratio is Close to Zero
At a glance, GM’s debt-to-equity ratio of 0.40 looks pretty attractive when compared to its major competitors. Toyota, having borrowed a lot of money to help it recover after the Tsunami in 2011, clocks in at a relatively unattractive 1.09. Meanwhile, Ford logs a seemingly preposterous debt-to-equity ratio of 5.34.
GM’s low ratio is backed by $31.92 billion in cash with $16.65 billion in total debt. Toyota has an enormous war chest of $38.94 billion that comes loaded with $148.99 billion in debt, while Ford has $24.10 billion in cash and $100.97 billion in debt.
GM’s low debt-to-equity ratio and large cash reserve is obviously a positive for the company, particularly as a source of funding to prop up its currently loss-making Opel unit in Europe. It’s worth pointing out that Ford has investment-grade debt, and there’s more than meets the eye to that ugly ratio. But that’s not within the scope of this report.