Looking For Value? Consider General Motors – No Really!
Bradford Cornell
Published on
Updated on
Critics of this blog point out that almost all the valuations we have posted here reach the same conclusion – the securities in question are overpriced. The most recent example is the ten bubble stocks. At Cornell Capital, we agree with the critics. Most every stock we evaluate, particularly the tech stocks, are either properly or overvalued in our opinion. But there are exceptions. As one example, consider GM.
By Gage [Public domain], via Wikimedia CommonsGM has streamlined operations, reduced the number of brands, improved the quality and design of its cars, cut pension expense, and become a leader in self-driving technology. Despite all these improvements, GM is currently trading at $31.79, a price more than 10% below where it was five years ago. Over the same period, the S&P 500 rose almost 60%. At its current price, the forward P/E ratio is only 5.2. It is not hard to see why value investors such as Warren Buffett and David Einhorn hold GM shares. To be sure, GM faces challenges. As we have stressed in our valuations of Tesla, the automobile industry is both highly competitive and capital intensive. Nonetheless, it would hard to argue the GM is overpriced. In our estimation, the fundamental value is significantly more than the price.
Bradford Cornell is an emeritus Professor of Financial Economics at the Anderson School of Management at UCLA. Prof. Cornell has taught courses on Applied Corporate Finance, Investment Banking, and Corporate Valuation. He is currently developing a new course on Energy, Climate Change and Finance. Professor Cornell received his Masters degree in Statistics and his PhD in Financial Economics from Stanford University. In his academic capacity, Professor Cornell has published more than 125 articles on a wide variety of topics in applied finance, particularly empirical analysis of asset pricing models. He is also the author of Corporate Valuation: Tools for Effective Appraisal and Decision Making, published by Business One Irwin, The Equity Risk Premium and the Long-Run Future of the Stock Market, published by John Wiley and Conceptual Foundations of Investing published by John Wiley. He is a past Director and Vice-President of the Western Finance Association and a past Director of the American Finance Association. As a consultant, Professor Cornell has provided testimony and expert analysis in some of the largest and most widely publicized finance related cases in the United States. Among his clients are AT&T, Berkshire Hathaway, Bristol-Myers, Citigroup, Credit Suisse, General Motors, Goldman Sachs, Merck, Microsoft, Morgan Stanley, PG&E, Price Waterhouse, Verizon, Walt Disney and various agencies of the United States Government. Professor Cornell is also a senior advisor to Rayliant Global Investors and to the Cornell Capital Group. In both capacities, he provides advice on fundamental investment valuation. In his free time Prof. Cornell enjoys cycling and golf.
