General Motors (NYSE: GM) faces concerns about rising aluminum and steel prices and a plateauing North American new-vehicle market, but it has made smart moves, positioning itself well in the new automotive era.
GM has collected a number of its car-sharing projects under a unified brand, Maven, and has invested roughly $500 million in ride-sharing company Lyft. It purchased Cruise Automation – giving it a significant presence in Silicon Valley and a huge credibility boost – while exiting a money-losing European business when it sold its Opel/Vauxhall operations.
GM is becoming a leader in smart mobility and driverless vehicles and has focused the company on more lucrative global auto markets, which could pay off for long-term investors.
The situation isn’t dire in the near term, either. GM continues to cruise in China, with sales growing 4.4 percent year over year during the first half of 2018 to 1.84 million units. (For context, crosstown rival Ford, which was slower to get into the Chinese market, posted a 25 percent year-over-year decline in the same period to 400,443 units.)
GM is also rolling out all-new versions of its bread-and-butter Chevrolet Silverado and GMC Sierra full-size trucks during the back half of 2018, which should support pricing and profitability over the next few years. Meanwhile, the company’s dividend recently yielded a fat 4.5 percent. Take a look under GM’s hood.
Ask the Fool
Q: I read that Tesla might be “taken private.” What does that mean? – F.L., Columbia, Missouri
A: Companies often start out privately owned by their founders. If they grow and prosper, they may “go public” via an initial public offering (IPO), selling a chunk of themselves in shares on the stock market. Companies can go in the opposite direction, too, becoming private again, if their shares are bought back and no longer trade publicly.
A high-profile example of a company being taken private is Dell. Founder Michael Dell, in partnership with a private equity firm, took his struggling computer company private in 2013. Now it looks like Dell will go public again.
Q: Does a low stock price mean a company is small, and vice versa? – H.T., La Crosse, Wisconsin
A: Not at all. The stock price alone doesn’t tell you much until you relate it to other numbers. To get at a company’s market value, multiply its stock price by its number of shares. You have to factor in the number of shares to get an idea of a company’s size.
If Keyboard Depot (ticker: QWERTY) had a stock price of $100, for example, and 10 million shares outstanding, its market price (”market capitalization,” or “market cap,” as they say on Wall Street) would be $1 billion. (Size can also be measured by other factors, such as revenue or number of employees.)
Consider that Cheesecake Factory, Starbucks and Verizon Communications were all recently trading for around $54 to $55 per share, but their market caps were, respectively, around $2 billion, $74 billion and $226 billion. Meanwhile, the WD-40 Company recently sported a share price near $188 but a market cap of $2.5 billion.
My dumbest investment
I used to subscribe to a respected business magazine, and it would periodically send me an advertising supplement. In one of those, I saw an ad for an investment opportunity in single malt whiskey. Just $1,500 would get me a hogshead barrel (probably around 60 gallons) of raw unaged whisky in a bond warehouse in Glasgow, Scotland. Doing some simple arithmetic, it looked like it could be worth something in eight to 10 years, and if not, I would at least have a barrel of aged whisky. What could go wrong?
Turns out it was mostly fraudulent. There apparently was some whiskey somewhere, but I never was able to trace it. I also was notified a couple of years later that the “merchant” that had sold the “investments” was out of business, and the only hope of restitution was if I had paid for it with a credit card, because then the credit card company might be on the hook for it.
Anyway, it ended up being a 100 percent loss. The magazine later apologized for selling ad space to hucksters. – H.K.C., online
The Fool responds: This is a great reminder that any investment opportunities that seem too good to be true probably are. Also, it’s smart to do some due diligence on any companies you’re considering investing in, to see what their track record is and if there are any red flags evident.
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