General Motors (NYSE: GM) has seen its stock fall more than 10 percent in 2014, in part due to a disappointing fourth quarter earnings report. The stock may be a more compelling portfolio candidate than many think, though.
Two of the biggest challenges that contributed to GM’s bankruptcy continue to linger: It still has underfunded global pension liabilities of nearly $20 billion, and it has lost nearly $20 billion in Europe over the past 15 years.
Despite that, General Motors simply isn’t the same company that failed so catastrophically during the recession. With forward-thinking new management, it has reduced its bloated cost structure and refocused on making cars people really want to buy. The new Chevy Impala was named Consumer Reports’ best sedan, and the Corvette Stingray and Chevy Silverado were named the North American car and truck of the year, respectively, at the Detroit 2014 auto show. Sales expectations are high for 2014, and GM has been confident enough to initiate a dividend, recently yielding 3.4 percent.
General Motors offers a forward-looking price-to-earnings (P/E) ratio near 7, a more profitable product line than it has seen in years and a North American market that is still harboring significant pent-up demand. Consider buying in before the market values this reinvigorated business for what it’s worth. (The Motley Fool’s Inside Value newsletter has recommended General Motors.)
Ask the Fool
Q: Apple posted record sales of devices in its last quarter, yet its stock fell. Why? – S.S., Longmont, Colo.
A: It all comes down to expectations. Apple reported record sales of $57.6 billion in its first quarter of 2014, and a record number of iPhones and iPads – 51 million and 26 million, respectively. That’s terrific, but while earnings were a bit above analyst expectations, revenue was below. And investors had been expecting to see several million more iPhones sold, too. Falling short of expectations can send a stock tumbling, at least in the short run.
Future expectations matter, too. Apple’s profit margins have been shrinking in recent years, causing some to worry. Still, there’s a lot to like about the company, such as its huge pile of cash and equivalents of more than $150 billion, its dividend of 2.3 percent, its strong market share in mobile devices and its ability to innovate and create new product categories.
The stock seems cheap these days, but opinions are divided on its future, even at Fool HQ. (The Motley Fool owns shares of Apple and its newsletters have recommended it.)
Q: Do I have to pay taxes on dividends received in my Roth IRA? – E.M., Phoenix
A: Nope. Whatever you invest in a Roth IRA grows free of taxes on capital gains and dividends. Your ultimate withdrawals will not be taxed, either – if you follow the rules.
Traditional IRAs offer different benefits. The qualified contributions you make to them reduce your taxable income, thereby giving you a tax break up front. But upon withdrawal, gains and dividends are taxed at your ordinary income tax rate. Learn more at fool.com/retirement.
My dumbest investment
My dumbest investment was riding shares of Google up – and then down. The value of my investment went from about $5,000 to $50,000 and then back down to $5,000. Dumb! – D.P., Scottsdale, Ariz.
The Fool responds: We hope you’ve hung on to those shares since you wrote us last year, as Google shares have gained about 45 percent since then. Long-term investors in stocks will find it hard to avoid getting stung by some sharp drops – but if they’re invested in healthy, growing companies, they’ll enjoy long-term gains as well.
When a stock you own is falling in value, you need to ask yourself whether it’s because of a long-term reason or a short-term one. If you believe the stock is undervalued and that the company has competitive advantages and solid growth prospects, it’s often best to hang on. If you’re no longer confident in the company, or if you’re simply not sure what you think, selling can make sense.
Google has a lot going for it, from its dominant search engine to its Android platform to its YouTube business, among many other things.