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Time to Invest in GM?
General Motors was once the largest corporation in the world and the king of U.S. auto makers. Foreign competition ate away at its customer base and profits and the financial crisis dealt the final blow. In 2009 the once-king of U.S. automakers filed for Chapter 11 bankruptcy protection with US$172.81 billion in debts and US$82.29 billion in assets. The company divested itself of numerous assets keeping the Chevrolet, Cadillac, GMC, and Buick brands as well as controlling interests in numerous foreign automobile operations. After reorganization, the new GM emerged in a $20.6 Billion IPO in November of 2010. Any money invested in the new GM at the time of its IPO has doubled, counting dividends and stock appreciation. All of this having been said, is it time to invest in GM for the long term?
Is It Time to Invest in GM?
Simply based on its dividend of 3.9% and a share price that is just 6.1 times its projected earnings, GM looks attractive. This may well be why Warren Buffett increased the Berkshire Hathaway stake in GM to 37% and now holds 5.1% of GM shares. However, projected earnings that are the big question for all automakers these days. The industry is undergoing fundamental changes and only those automakers that adapt, innovate, and work with maximum efficiency will survive and prosper. If you believe that GM will lead the group of survivors, then you believe that it is time to invest in GM.
The factors that we see affecting the auto industry all derive from new technologies and the effects of these technologies on how we live, communicate, work, buy services, own cars (or not), and drive (or not).