Every now and again, a big-name blue chip stock trades at a price well below its real value. The markets are cruel in that way. But they present opportunities for investors to buy great companies at significant discounts and unfairly lowered valuations. Right now, General Motors is one of those stocks.
"General Motors may be a blue chip stock at a discount."
So why is it undervalued?
Because General Motors filed for Chapter 11 bankruptcy protection in June 2009, there is still some residual negative sentiment over that. According to the Motley Fool, since then, General Motors declared its first dividend after the bankruptcy in 2014, but its shares still dropped in value by 27 percent. As a result, its trailing price-to-earnings ratio is low.
There are also concerns about General Motors having its lending bubble burst, similar to that of the subprime lending crisis. On top of every other concern, Detroit automakers are currently being viewed as a thing of the past.
The case for General Motors
While it currently trades at $29.82, down slightly from this time a year earlier at $36.30, General Motors is a catch at the moment. According to Zerg Watch, some analysts project its median 12-month price will land around $37, which would represent a 22 percent jump from where it stands now. But while that may seem like a generous projection, other analysts believe it could skyrocket to $50, which would be close to a 42 percent spike.
Despite the strong projections, many ratings firms such as Argus are giving General Motors a hold verdict, according to a 24/7 Wall Street report. So for right now, while the projections look good, there is no telling when the stock price will gain. That is due to the fact that General Motors has hovered around the $29 to $31 range since the start of the year – and spent the majority of 2015 there too.
But for investors, General Motors looks as strong as it ever did, most notably because it still pays out a 5.07 percent dividend, according to a Motley Fool report. Not only is it still the largest U.S. auto manufacturer, but it pays out 3.16 percent higher than the most recently recorded benchmark average of the Standard & Poors 500 Index, Investopedia revealed.
Even though sales in May dropped by 18 percent from the same time in 2015, its earnings per share went up by 47 percent year-over-year in the first quarter of 2016.