General Motors’ (NYSE: GM) stock has been trading at rock-bottom valuations for a long time. The fear that a slowing of demand for vehicles would ravage GM’s bottom line has been holding back the stock, but whenever the next downturn occurs, GM will be a leaner and more efficient company than it was last time around. Investors also don’t seem to be giving GM’s innovation initiatives enough credit.
While Tesla currently manufactures America’s top-selling electric vehicle, GM’s Bolt claims the second-place position on the sales chart, and GM’s production capabilities mean that it’s in much better position to capture growth in the category as demand increases at the consumer and fleet levels. GM also seems to be at the forefront of autonomous-vehicle technology, having recently unveiled a car for ride-sharing use, on track for a 2019 debut, that doesn’t have a steering wheel or pedals.
GM shed its money-losing European operations last year, and it expects its 2018 results to be in line with its 2017 results, with new full-size pickups set to launch later this year, helping to accelerate earnings in 2019.
With a forward-looking price-to-earnings ratio recently near 6.5, a healthy dividend that recently yielded 3.7 percent, seemingly exaggerated risk factors and underappreciated growth prospects, GM stands out as an attractive, undervalued income opportunity at recent prices.
Ask the Fool
Q: How can I find out which stocks my mutual fund is invested in? – R.M., Dallas
A: You generally can’t know what any managed fund owns at the moment, but most funds will publish lists of holdings at of the end of each month or quarter. You’ll likely find these reports on fund company websites and also at sites such as morningstar.com, which offer lots of information on a wide range of funds.
Don’t assume the lists are still 100 percent accurate. While a fund may have many shares of a company as of the end of last quarter, it might have sold off most of them by the time you’re reading the report. Some fund managers engage in “window dressing,” loading up on hot stocks near the end of a quarter, so that they’ll look good.
Q: What’s a “golden parachute”? – L.B., Binghamton, New York
A: It’s deployed when a company gives a hefty payout to a departing CEO or top executive. Some executives’ contracts stipulate that if they are dismissed or the company is sold, they’ll receive a certain payout, potentially including cash, stock, options, continued travel allowances, health care coverage and more. Many may seem reasonable given the performance of the executive and the company, but others are rather outlandish and sometimes go to bigwigs who haven’t done stellar jobs or been in their positions long.
A classic example is former Pfizer CEO Henry McKinnell, who left his position in 2006 after about five years with more than $100 million in severance and an $83 million pension – at a time when the company was losing money and its stock had plunged.
As you might imagine, shareholders don’t love golden parachutes.
My dumbest investment
My dumbest investment was selling put options on WorldCom stock a year before fraud was detected. It seemed like a great growth story at the time, and I couldn’t imagine the stock falling over the next few months. The $15,000 I collected in put premiums was nice, but ultimately I ended up paying a lot more in tuition to the School of What Can Go Wrong, as WorldCom headed toward bankruptcy. I had tax-loss carryovers that I’m finally ridding myself of just this year. – F.U., Gig Harbor, Washington
The Fool responds: Options can be very risky and costly, especially to the inexperienced.
A put option gives its holder the right to sell a specified asset at a specified price at any time, until the option expires. The seller of the put must buy the asset at that price, no matter what it’s going for in the market. (Call options are the opposite: They give their holder the right to buy a certain asset at a certain price until expiration, with the call seller required to sell it.)
If you’re pretty sure a particular stock will soar or fall within a certain period, you can make money off those who think otherwise – but you can also lose much more than you ever expected if things don’t go your way. You were smart to put your tax loss to work, though.