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First, the global chip shortage, which is having a big negative impact on the company’s operations. Then, the fallout from the Chevy Bolt recall, due to an increase in reported battery fires. To top it all off, market-wide uncertainty, which is also applying pressure.
Once these issues play out? This stock might be worth a look.
For one, the chip shortage, expected to end by mid-2022, will only have a temporary impact on GM’s operations.
More importantly, what’s happening today does little to affect the company’s longer-term EV catalysts.
Its aggressive push into EVs not only keeps it from falling behind more forward-thinking rivals. If it plays out as, or better than, expected, it may result in investors giving this cheaply priced stock, with a forward price-to-earnings ratio of 7.7x, a much higher valuation.
At today’s prices, I am neutral. However, consider me bullish if another sell-off sends it down to $40, or perhaps near $30, per share. (See GM stock charts on TipRanks)
Chip Shortage, Volt Recall
As you likely know, the global shortage of semiconductors has become a major issue for the automotive space. How much of an impact is it having for General Motors?
Back in August, the automaker told investors the shortage would impact production of 100,000 vehicles in the second half of 2021. That estimate has now doubled.
Pessimism over its near-term prospects has grown for the automotive stock. Along with this, of course, is the Chevy Bolt recall news.
There have been battery fire issues with the Bolt before. Past recalls have failed to fix the problem though, as there have been more reports of battery fires, and now General Motors has been forced to recall all existing vehicles, and pause production of new ones. All in all, resolving this problem will cost the company an estimated $1.8 billion.
Long-Term Catalysts Still in Play
Things may get worse for General Motors before they get better.
An overall pullback in stocks would impact it as well. Although it trades at a low valuation relative to the market, it too could see some multiple compression in a downturn. As mentioned above, a further pullback may push it down between $30 and $40 per share.
If this happens? The impact of the chip shortage, and the Bolt recall, would be more than accounted for at lower prices. Once these headwinds fade next year, focus will shift to the company’s longer-term catalysts.
These include both its move to electrify its fleet, plus its stake in autonomous vehicle (AV) startup Cruise, worth around $20 billion based on its last funding round.
Wall Street’s Take
According to TipRanks, GM stock has a Strong Buy consensus rating. Out of 15 analyst ratings, 14 rate it a Buy, and one analyst rates it a Hold.
The average GM price target is $72.40 per share, implying 36% upside from today’s prices. Analyst price targets range from a low of $53 per share, to a high of $90 per share.
In the coming months, General Motors shares could decline further, as the factors making investors nervous today are still playing out.
After it moves back to a lower price level, and once current hiccups subside, GM stock could be a solid long-term play..
Disclosure: At the time of publication, Thomas Niel did not have a position in any of the securities mentioned in this article.
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