Why Is GM Stock So Cheap?

Andrew Willis:

Long gone are the days of having to overproduce automobiles to cover high labor costs, only to have to dump them into rental fleets and hurt residual values. And you can look to General Motors GM for much of what the new automaker business looks like.

'New GM' Shifts Gears

GM now operates in a demand-pull model, says sector strategist David Whiston, where the company only produces once there’s demand for vehicles, and is structured to do no worse than break even at the bottom of an economic cycle. The result is higher profits than under old GM—despite a relatively lower U.S. share of the market.

Earlier this year, "new GM" decided to hold on to its excess capital—shortly before buying up its own stake from Softbank. That signaled optimism in the new model, but we also just like management buying stock while it's so far below our fair value estimate.

From Morningstar, I’m Andrew Willis.

Check out Morningstar.ca to watch