The Motley Fool: Take a drive with affordable GM
The Motley Fool Take
Looking for a stock trading at a discount with a high dividend yield and future catalysts that could boost earnings? General Motors (NYSE: GM) fits the bill.
The company hasn’t been getting much love lately, in part due to a plateauing new-vehicle market in America. But the U.S. economy continues to grow, while the average age of the U.S. vehicle fleet remains near an all-time high. That should lead to plenty of replacement demand in coming years. Better still, as it develops more and better products for key market segments (such as the crossover and luxury markets), General Motors should be able to gain market share. And by using fewer core vehicle architectures, it can keep costs down.
Meanwhile, General Motors’ Maven project, which encompasses its car-sharing and smart-mobility projects, is in its very early stages and expanding rapidly. And that’s not to mention autonomous vehicles and General Motors’ acquisition of Cruise Automation.
General Motors is also in the midst of a multiyear plan to grow its in-house financing arm, GM Financial. GM Financial is on track to double its pre-tax earnings from 2014 to 2018.
With a price-to-earnings (P/E) ratio recently near 4 and a dividend yield above 4 percent, General Motors is an attractive long-term portfolio candidate. It has been rewarding shareholders by spending billions on share repurchases, too. (The Motley Fool has recommended General Motors.)
Ask the Fool
Q: What’s a mutual fund’s “NAV”? - F.S., Ann Arbor, Michigan
A: NAV is net asset value, which is a fund’s per-share value. Mutual fund prices don’t fluctuate during the day like stock prices do. Remember that funds are composed of many different securities, so at the end of each trading day, fund companies add up the market value of all their holdings. They then subtract the fund’s expenses for the day, such as commissions paid. The result, divided by the number of shares of the fund, is the NAV.
Don’t evaluate a fund’s performance via its NAV, though, as dividends and realized capital gains distributed to shareholders are subtracted from it. Instead, focus on the fund’s total return for any given period.
Q: Is it better to invest through a 401(k) account or to buy individual stocks directly? - N.G., Lexington, Kentucky
A: Both are solid options. Choosing individual stocks gives you more control and the chance of faster growth - but it can be a riskier route, too, as not all stocks go up. A 401(k) account offers a tax break but also a much more limited range of investment choices - often a bunch of mutual funds.
Consider parking much or all of your long-term 401(k) money in a broad-market index fund. If your plan doesn’t offer one, ask for it. And if your employer matches any part of your 401(k) contributions, that’s free money, and you should max that out.
Start investing as early as possible, because the longer your nest egg has to grow, the bigger it will likely get. Learn more about retiring well at fool.com/retirement and by trying our “Rule Your Retirement” newsletter for free, at fool.com/shop/newsletters.
Closed-end funds can be volatile, and they sometimes charge high fees. Learn more before investing in any. Start at sec.gov/answers/mfclose.htm.
My Smartest Investment
I decided to take about 7 percent of my portfolio and invest in stocks that I decided were good buys. No more listening to the talking heads on financial TV or just getting ideas from magazines. I would become a student of investing and see what I could do.
Well, in just two years, that part of my portfolio has tripled in value and makes up more than 20 percent of my portfolio’s total value. I plan to continue buying into companies I believe in, and I’ll hold them until I no longer believe in them. Doing so has served me well so far. - Dave, online
The Fool responds: Your story is a great reminder that we shouldn’t sell our abilities short when it comes to investing. If you spend some time learning about companies, investing and the business world - and you commit to continue learning over time - you can do well.
There are some good investing ideas offered in the media, but you’ll rarely know the track record of the person making the recommendation, and you won’t hear about it when he or she no longer believes in it. By being responsible for your own investments, you’ll remove any chance of conflicts of interest getting in the way.
You can keep your investing very simple, too, by just investing in inexpensive, broad-market index funds. You needn’t become a stock-market genius, skillfully finding undiscovered gems.