Why You Should Reconsider General Motors Company Stock

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General Motors Company (NYSE: GM ) held its annual Investor Day recently, and all reports are that a joyful time was had by all. But under the hood, the country's biggest car company has trouble, which should worry owners of GM stock.

CEO Mary Barra filled the halls with happy talk promising more electric cars, more self-driving cars, and an autonomous "taxi service" in 2019. But the GM stock price has been falling since December dawned, opening December 13 at $42 per share, down from an October peak of $46.48 and a November high of $45.34.

Our Joseph Hargett summarized the case for the bears. "With bearish sentiment rising and monthly auto sales falling, GM is in reverse." On the other hand, the price to earnings ratio of the stock is still under 9, in a market where even ordinary companies draw twice that, and the 38 cents per share dividend now yields 3.66%. It's tempting, but don't yield quite yet.

Trouble Ahead for GM Stock?

The golden age of SUVs and big trucks may be ending. These high price and high profit vehicles are wildly popular in places like Texas, where my little Scion is often lost in the parking lot. Higher nominal interest rates and stronger markets outside the U.S. are shifting industry gears.

Inventory levels are also rising, from 78 days' supply on dealer lots in September to 83 days in November. This is good for bargain hunters. Costco Wholesale Corporation (NASDAQ: COST ) expects to move a ton of GM inventory this month. But still there are danger signals worth noting.

The most popular GM cars at Costco are the crossovers, with more buyers seeking Silverados and fewer seeking Sierra pick-ups. The result is a negative chart pattern that has headline writers using the word "crash," even if that just means GM stock at $41 per share. The shares could test that key support level during the week of Dec. 18, maybe even fall below it.

The Bull Trade

Not all the bulls are on the run. Our Chris Tyler writes that you may still make money with a bullish options spread . If GM hits its "whisper number" of $1.29 per share of earnings when it reports Jan. 23, you would be looking at nearly $5 per share of earnings for the year and the dividend would be easy to pay.

Operating cash flow remains positive for GM, and should pass $20 billion for all of 2017. There is also good news coming from China , and reports the company may re-enter European markets next year, after retreating from them in 2016.

GM has big plans to improve the mileage on its signature trucks with carbon fiber, the company could produce over 1 million electric vehicles in 2018, and it's adding things like ecommerce dashboards, which with voice controls could let you get a hotel room without taking your hands off the wheel.

The Bottom Line on GM Stock

GM is never going to be Tesla Inc (NASDAQ: TSLA ). GM stock is one you buy for dividend income, not for capital gains. As an investor, you look to buy when the bears are running and then hold on through the economic cycle.

We may be approaching such an opportunity. If the technical patterns are accurate, showing a move toward $40 per share is imminent, then income investors need to be lining up to snatch that 38 cents per share dividend and grab a yield of nearly 4%.

Take a close look over the holidays, and if you can get in below $40 you've got a bargain. GM will easily clear its dividend with earnings, it is devoted to delivering income, so if you need income come and get it.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time , available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.comor follow him on Twitter at @danablankenhorn . As of this writing he owned no shares in companies mentioned in this article.

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The post Why You Should Reconsider General Motors Company Stock appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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