1. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 78
PE Ratio as of August 1: 4.87
The best very cheap stock to buy now, according to hedge funds, is General Motors Company (NYSE:GM) which designs, builds, and sells automobiles and automobile parts, and provides software-enabled services and subscriptions.
GM is considered an affordable stock to purchase right now since its PE ratio of 4.87 is lower than the median PE ratio of 19.52 for the Auto Manufacturers industry. Meanwhile, elite funds are piling into this stock as well, with hedge fund positions totaling 78 in Q1 2024 and a collective stake of $478.10 million, giving us a clear hint that investors are optimistic about GM’s stock.
Despite robust Q2 performance driven by robust demand for pick-up trucks and SUVs, General Motors’ (NYSE:GM) share price dropped by 6% as the production of an autonomous vehicle from its self-driving unit, Cruise, was delayed indefinitely. The car, which lacks a steering wheel or pedals, faced years of delays and scrutiny. However, the automaker upgraded its outlook for the fiscal year 2024 and now projects adjusted EBIT of $13-15 billion and free cash flow of $9.5-$11.5 billion, up by $1.0 billion from the prior projection. A $104 million unexpected loss in its China operation caused a selloff in the company’s stock. However, GM is valued with a high safety margin, making it an appealing investment opportunity.
GM beat Wall Street’s average forecast by $0.36 with adjusted earnings per share of $3.06 reported. The $47.97 billion in revenues is above the $45.32 billion forecast, a 7.20% from the same quarter the previous year. Strong Q2 EBIT performance was driven by the ICE segment, which generated $4.4B, a 37% increase over the same quarter the previous year. This rise was aided by the very strong performances of the GMC Sierra and Chevrolet Silverado. Of the almost 700,000 cars that GM delivered in North America, less than 22,000 were BEVs.
Compared to Ford, GM appears to be undervalued, as seen by its substantially lower forward P/E ratio of 4.13 against Ford’s 10.45.
Diamond Hill Capital mentioned the firm in its Q1 2024 investor letter. Here is what the firm said:
Automobile manufacturer General Motors continues capitalizing on the shift to electric vehicles (EVs) while maintaining the strength of its core gas-engine truck and SUV business. Though it has experienced some setbacks — such as needing to roll back its Cruise driverless car project — we believe the company remains well-positioned relative to secular tailwinds within the automobile business.”
Analysts are also bullish on the stock and rate it as a “buy,” with an average target price of $556.07 and an upside potential of 36.19% from the current stock price of $41.17.
Although General Motors Company (NYSE:GM) has a competitive edge over pure-play EV companies due to its reliance on ICE vehicles, there may be concerns associated with reducing EV manufacturing in the future. Moreover, the redesigned 2024 Chevrolet Traverse increases competitiveness in the midsize SUV market. GM’s Ultium battery technology and its wide range of brands, which include Wuling, Baojun, GMC, Buick, Cadillac, and Chevrolet, are among its greatest strengths. However, the growth of the company might be impacted by slowing sales. Notwithstanding these risks, General Motors reported solid Q2 earnings, with high product demand and significant stock repurchase authorization that set a floor for the share price.
While we acknowledge the potential of General Motors, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than General Motors but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds is originally published on Insider Monkey. We focus on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
