3 Reasons to Buy General Motors Stock Like There’s No Tomorrow

General Motors (GM 0.63%) is often overlooked by investors in favor of pure-play EV stocks. But I’d argue that not only is General Motors a cheap stock right now, but it might be the most underrated way to invest in both electric and autonomous vehicles in the entire market. Here are just three of the many reasons why General Motors is one of the largest stock positions in my own portfolio, and why I plan to continue building a position over time.

Tons of EV and autonomous potential

While GM’s ICE (internal combustion engine) pickups and SUVs continue to drive profits, the company is still in the early stages of developing its EV strategy.

So far, the progress has been impressive. The Hummer EV, Chevy Silverado EV, and Cadillac Lyric SUV are some examples of products currently on the market. In total, GM delivered 22,000 electric vehicles in the second quarter, representing a 40% year-over-year increase and a 2.2 percentage point increase in market share from a year ago. Several new models are arriving in dealerships later this year, and that could create a long-term tailwind for the business.

On the autonomous vehicle front, GM’s Cruise subsidiary recently struck a partnership Uber to develop a driverless ride-sharing service, and after a major setback, Cruise vehicles are conducting road tests in three cities.

Incredibly cheap rating

General Motors trades for a remarkably cheap valuation of 5.5 times trailing 12-month earnings and less than 5 times trailing 12-month earnings estimates. In short, profits beat expectations, and the market doesn’t seem to have much faith in the company’s ability to maintain or increase profitability.

This cheap valuation is the result of massive profitability, as GM not only posted its best quarterly sales since 2020 in the second quarter, but did so while maintaining pricing power above the industry average. The company produced $5.3 billion in automotive free cash flow in the second quarter alone.

Aggressive redemptions

Management clearly thinks General Motors stock is cheap because it has one of the most aggressive stock buyback programs we’ve ever seen. At the end of 2023, the company announced an accelerated $10 billion buyback program, which it used to reduce its outstanding shares by 18% in the past year alone.

That buyback program has been used, but the company authorized an additional $6 billion buyback plan in June, and management has a near-term goal of reducing the number of shares outstanding to less than 1 billion (currently about 1.14 billion).

When done for the right reasons, buybacks can not only help increase earnings per share, but can be a great way to create long-term value if the stock is purchased below its intrinsic value.

A strong business in the early stages of a major transition

To be sure, this is not a low-risk stock by any definition. First, the auto business can be highly cyclical, and sales (and profits) could plummet in a recession. In addition, GM has a massive financing business, with about $121 billion in outstanding loans, so there’s also quite a bit of credit risk.

Despite the risks, General Motors is simply too well run and has too much potential to trade at such a cheap valuation. If the company can execute on its EV strategy and keep its ICE business profitable, there could be plenty of upside for patient investors.