We recently compiled a list of the 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. In this article, we are going to take a look at where General Motors Company (NYSE:GM) stands against the other very cheap stocks to buy according to hedge funds.
As we approach the third half of 2024, the market’s performance continues to draw in both investors and analysts alike. After rising by an average of 24% the year before, the 500 largest-cap US equities finished the second quarter of this year with an impressive gain of over 3%, on average. Overall, the unexpectedly resilient U.S. economy and the frenzied AI boom have propelled equities to unprecedented levels.
Even though the markets are currently worried about a slowdown, most recent economic indicators complement this market performance, demonstrating the US economy’s resilience. The Commerce Department revealed a 3.1% YoY gain in Q4,2023 for the economy, primarily due to solid consumer expenditure on dining out, healthcare, and automobiles. The world’s largest economy’s growth prediction was slightly revised by the IMF to 2.6% this year, pointing out the country’s robust and adaptable nature to changes in the global economy. According to Economic Intelligence’s consumer goods and retail outlook study for 2024, global retail sales are projected to rise by 6.7% in 2024, bolstered by a 2% increase in volume, regardless of a dip in inflation.
This brings us to industries that are selling at a discount, of which, broadcasting is one, at an EV to EBITDA ratio of 7.31. According to The Business Research Company, the television and radio broadcasting markets have expanded significantly in recent years. It is expected to grow from $439.41 billion in 2023 to $466.83 billion in 2024, at a CAGR of 6.2%. According to Future Market Insights, North America has the largest market share globally for television broadcasting services, followed by Asia Pacific.
The introduction of digital transmission and the Internet caused a major transformation in the television industry. Broadcast television and cable coexist with cable substitutes like HBO Max, Netflix, and Amazon Prime Video. Many others have completely cut their cable connections, opting to get all of their television needs met online. The Motion Picture Association of America reports that the film and television industries have a major economic impact, employing 2.5 million people annually and paying out over US$ 188 billion in compensation.
Another industry trading at a reduced price is air transportation, which has an EV to EBITDA ratio of 6.17. The Business Research Company reports that the size of the air transport market has expanded dramatically in recent years. The projected CAGR is 6.8%, which would see it rise from $1,016.38 billion in 2023 to $1,085.37 billion in 2024. Furthermore, it is anticipated that during the next several years, the size of the air transport sector will rise significantly. With a 6.5% CAGR, it will reach $1,394.51 billion in 2028.
The future expansion of the air transport market is anticipated to be driven by the growth of e-commerce and online shopping. For example, in September 2022, the US Department of Commerce’s International Trade Administration reported that consumer e-commerce accounted for 30% of the UK’s total retail market (up from 20% in 2020), with over $120 billion in e-commerce sales annually. In the UK, 82% of individuals will have made at least one online transaction by 2021.
Methodology:
We selected stocks with an institutional ownership of over 70% and a PE ratio under 10, as of June 25 for our list of 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. We narrowed down our selection to 10 stocks that were the most widely held by institutional investors and ranked them in ascending order of the number of hedge funds that have stakes in them as of Q1 of 2024. In cases where two or more stocks have the same number of hedge funds, we’ve used the PE ratio as a tie-breaker.
In order to identify cheap stocks, we searched for companies with a strong earnings track record by evaluating their EPS over the last two to three years. Secondly, we only considered stocks that received “buy” or “strong buy” recommendations from analysts.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here.)
A group of technicians in a garage, inspecting car parts and ensuring safety compliance.
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.
Overall GM ranks 1st on our list of the very cheap stocks to buy. You can visit 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds to see the other very cheap stocks to buy that are on hedge funds’ radar. While we acknowledge the potential of GM as an investment, 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 GM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.