With more than an 8% pop on Tuesday, shares of General Motors (NYSE: GM) were among the best performing in the S&P 500 index on the day. We’re not even three weeks into the new year and already they’re taking the mantra “New Year New Me” to heart. By the time we were 19 days into 2020, GM’s stock was down 5% on the year. This time around however, it’s up 30%.
But that’s only a fraction of the picture. If we look at the company’s performance in recent months, say since April, they become almost unrecognizable from the same GM that filed for bankruptcy in the wake of the 2008 crash. Their shares are up more than 200% in the ten months since and by many measures are only getting going. Not only have they managed to undo all of the damage from last March’s crash, but they’ve started off 2021 on the right foot, soaring to fresh all time highs in the past week.
The catalyst behind Tuesday’s pop, which sent shares even higher, was news of a $2 billion investment from Microsoft (NASDAQ: MSFT) and some others into GM’s autonomous vehicle company, Cruise. What’s being called a “long-term, strategic relationship” will see Cruise utilizing Microsoft’s Azure cloud platform as a preferred partner across many critical functions of their commercialization.
As GM CEO Mary Barra said with the news, "Microsoft is a great addition to the team as we drive toward a future world of zero crashes, zero emissions and zero congestion. Microsoft will help us accelerate the commercialization of Cruise's all-electric, self-driving vehicles and help GM realize even more benefits from cloud computing as we launch 30 new electric vehicles globally by 2025 and create new businesses and services to drive growth."
For many, it looks to be a match made in heaven, with the combination of world class software and hardware engineering excellence, cloud computing capabilities, manufacturing know-how and partner ecosystems shaping up to be a tough one to match. Microsoft’s presence will also lend massive credence to GM’s efforts to rebrand themselves, efforts that have also had the company updating their logo for the first time in fifty odd years.
Exciting Times Ahead
For any investors who’ve missed GM’s updates in recent months, the fact that they’re making such inroads into the electric and autonomous vehicle space will surely come as a surprise. But it’s been the key factor underpinning the rally and we need only look at the likes of Tesla (NASDAQ: TSLA) to get a sense of the hype around the new frontier. Indeed, this foray was the reason for both Nomura and Argus upgrading shares from Hold to Buy last week.
Argus analyst Bill Selesky touched on it in a note to clients; “the company continues to diversify its business as it expands into electric and autonomous vehicles. It also benefits from high margins in North America, solid cash flow, and a strong balance sheet. In addition, we believe that investors have undervalued the company's strength in traditional internal combustion vehicles”.
For those of us looking to get exposure to an exploding market without buying into Tesla’s 1,600 price-to-earnings (PE) ratio, GM looks pretty attractive with a PE of just 24. On top of that, Selesky is expecting the company to reinstate their dividend in the coming months which would only add fuel to the rally and give more investors solid reasons to get involved.
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