General Motors (GM) stock has experienced a remarkable rise, overlooked by many investors. In recent Thursday trading, GM stock saw a 0.8% increase, surpassing gains in the S&P 500 and Dow Jones Industrial Average, which were up 0.5% and 0.3% respectively.
If GM shares maintain their upward trajectory, it will mark the auto maker’s 13th consecutive rise in stock value. Over this period, GM has seen an impressive gain of over 13%. The last time the company achieved such a winning streak was in July 2016, when it rose steadily for 13 consecutive trading days, as reported by Dow Jones Market Data.
Apart from this remarkable consistency, investors are left pondering the reasons behind GM’s extraordinary performance.
Part of the rationale lies in GM-specific news. On Thursday, the company unveiled its 2024 Hummer electric pickup, boasting an extended range. This impressive electric vehicle can travel almost 390 miles on a single charge, surpassing its 2023 model year counterpart by 25 to 30 miles.
While the Hummer is undoubtedly impressive, it remains a niche product with a hefty price tag exceeding $100,000. Nonetheless, this electric vehicle news serves as a reminder to investors that GM’s electric vehicle lineup is about to expand. Later this year, we can expect the launch of the all-electric version of the Chevy Silverado pickup truck and Blazer SUV. The success of these vehicles is crucial for GM’s overall strategy of becoming a major producer of both electric and gasoline-powered cars.
Another contributing factor to GM’s winning streak is the significant increase in car sales during June and the first quarter. Light vehicle sales in the U.S. rose approximately 2% during the second quarter in comparison to the first quarter, and witnessed around a 9% surge compared to the fourth quarter of 2022.
With the rise in sales volume, GM’s earnings estimates have climbed higher. Analysts now expect the company to report second-quarter earnings of $1.80 per share, a notable increase from the previous estimate of $1.70 per share just a few weeks ago.
The Rise of the Automotive Sector
The automotive sector is experiencing significant growth, and there are three key reasons behind this trend.
Inflation Data: A Positive Impact
Firstly, the latest inflation data has played a crucial role. In June, U.S. consumer prices rose by 3% compared to the previous year, which was slower than what economists had expected. This lower inflation rate is expected to lead to a decrease in interest rates. Since many individuals purchase cars on credit, lower interest rates will result in reduced car payments.
Positive Momentum for Car Stocks
Secondly, it is worth noting that other car stocks are also performing well due to similar reasons. For example, Tesla (TSLA) stock has seen a 6% increase over the past 13 days, while Ford Motor (F) stock has climbed about 8%. This positive momentum indicates that the market is increasingly optimistic about the automotive sector.
Factors to Sustain Growth
The question now is whether this growth can continue. To ensure ongoing gains, companies in the automotive sector must deliver solid second-quarter earnings reports. Moreover, investors may seek upward revisions in guidance to further boost confidence. It is worth noting that General Motors (GM) expects to achieve approximately $11.5 billion in operating profit by 2023.
Outlook for Key Auto Makers
The earnings reports for auto makers are set to kick off on July 19 with Tesla being the first to report. Market expectations indicate that Tesla’s operating profit will reach $2.7 billion, highlighting its position as an electric vehicle (EV) pioneer.
General Motors: Potential Upside
When it comes to General Motors, its current stock valuation presents an interesting opportunity. The company’s shares are trading at just 6 times the estimated earnings for 2024. This suggests that investors have not fully priced in the potential for EVs to drive higher earnings in the coming years. Currently, General Motors’ valuation is around 30% of the S&P 500’s multiple of 19.3. However, in recent years, GM stock has typically traded at approximately 40% of the S&P multiple. If it returns to this level, GM stock could fetch about 8 times the estimated earnings for 2024, resulting in a further 25% gain.
In conclusion, the automotive sector is experiencing a significant boost, driven by lower inflation rates and positive market sentiment. However, sustained growth will depend on strong second-quarter earnings and optimistic guidance from key industry players.