Reborn American automaker General Motors (GM: Charts, News, Offers) posted its strongest net profit since 1999 but its shares were met with a muted, decidedly bearish response – driving shares down over 4% in regular trading due to unraveling Mideast turmoil centered on Libya, one of the world’s top oil producers. The iconic symbol of Detroit emerged from Chapter 11 bankruptcy under government ownership, and was subsequently restructured as a public company last November in the largest IPO in American history. Despite impressive numbers, the shares have now fallen to near IPO levels in the $33 range. Is this weakness in the markets a second opportunity for investors to invest in GM?
Daily Chart
The company earned $4.7 billion for 2010, the best figures in 11 years, and awarded employees an average of $4,300 each in profit-sharing. This also represents the first time GM finished the year in the black since 2004. The fourth quarter came in weaker than its previous quarters, with a earnings of $510 million on revenue of $36.9 billion, far better than its loss of $3.5 billion the same period last year. GM had previously warned that its fourth-quarter profits would be impacted by R&D, manufacturing and launch costs of its Chevrolet Cruze compact and Volt extended range electric car. In addition, the company purchased back $2.1 billion of preferred shares back from the U.S. Treasury, which reduces the American taxpayers’ stake in General Motors from 61% to 33%. Excluding this charge, as it counts as a stock buyback, as well as its dividend payments to preferred shareholders, GM earned $1.4 billion in the quarter and $6.2 billion for the year, and earned a $4.7 billion net profit. This still came in short of analysts’ expectations of $5.3 billion. However, these numbers show a tremendous recovery for a company which was classified as a dead man walking back in the depths of the financial crisis.
For General Motors to become profitable for U.S. taxpayers involuntarily invested in the company, the share price needs to rise above $53 per share, its break even point. Everything seemed on track for the past several months, with news of high demand in China and a rapidly recovering automotive sector, driving the share price to a high of $39.48. Then the Egyptian crisis spread to Bahrain, Iran and Libya, where turmoil in the oil-rich country drove crude oil to $100 per barrel and flattened stock indexes around the world. General Motors certainly isn’t electric car maker Tesla Motors (TSLA: Charts, News, Offers) yet, with a limited selection of electric cars and hybrids, and most of its profits still come from high margin SUVs with low gas mileage and traditional compact cars with average gas mileage. The company has begun to map out a plan if oil hits $120 per barrel, which is still lower than its peak of $147 per barrel in 2008. Emerging markets, which still fuel demand for low-cost gas guzzling vehicles, may offset losses in developed markets such as America and Europe.
GM’s European operations still remained deep in the red, for 11 years straight, incurring a $1.8 billion operating loss for 2010, which is still better than its $799 million loss the same period last year. GM doesn’t have lofty goals for the region – it merely hopes to break even in 2011 and make a slight profit by 2012. GM has now separated its South American profits from the rest of its GM International Operations, which still includes Russia, Asia and Australia. GMIO’s sales fell slightly this quarter, down to $334 million from $428 million the same period last year. South American profits also fell, down to $195 million from $291 million a year earlier. Much of this can be attributed to the weak American dollar and the rising costs of commodities such as steel.
Labor unions, which have long been entrenched in the American auto industry, are no doubt responsible for the hefty awards granted to GM’s employees. Hourly employees at former Delphi components plants will receive a bonus averaging $3,200 each, and salaried American employees will receive 150% of their performance-based pay for the year. This averages out, company-wide, to the aforementioned $4,300 each.
Shares of GM currently trade with a forward P/E of 7.86, with no dividend for common shares.
Other News About GM
GM posts fourth-quarter, full-year profits
GM’s earnings in review.
GM posts 1st full-year since 2004
After six years, GM finally posts a profit.
Other Stocks in the News
Steve Job’s health not worrying Apple
All eyes are on Steve Jobs and the future of Apple.
Google launches its next assault on “cumbersome, legacy” Microsoft Office
Will Google’s cloud swallow Microsoft whole?
Copyright 2011 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc.
No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions.
We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.
Other relevant articles you may like
Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
