It’s time, again, for our monthly stock pick and this entry will be short because there really isn’t anything left that we haven’t already said. General Motors Company (NYSE: GM) is our official choice – again. We should point out that Canadian Imperial Bank of Commerce (TSE: CM, our official pick last month) was a close second. The price of GM has been pretty stable over the last 7-8 months so there has been little capital appreciation but their dividend yield is still an attractive 4.8%. The really great thing about GM stock right now is that the P/E ratio is still exceptionally low (3.58). That’s the lowest of the over 200 stocks we follow! Their strong earnings (the EPS is 8.74) contribute to that low P/E. This means the price of the company compared to its value is very low. The only other company with EPS so much higher than their P/E is Gilead Sciences (NASDAQ: GILD). If you’re keen on capital growth, Gilead is a good choice because they are currently trading 34% lower than their 52-week high which is a great sale! Their dividend yield, however, is only 2.6% which is below our 3.5% threshold so we cannot officially recommend them.
Someday, investors will discover the value in GM and the share price should move to a more reasonable P/E. Why not buy them now and enjoy the climb in the stock price!
I do not know GM in details, but have in mind that autos generally have low valuation multiples (due to high recurring capex). Also remember that business cycle for autos is doing very well, so I’d rather expect some downside… There must be a reason share price was not growing over the last 3 years…
Best regards,
DividendTIME
Excellent points, both. I think part of the reason for the lack of growth has been the difficulty in the auto sector over the several years ago – from which they are still recovering. As a long-term, dividend investor, the lack of growth is not troubling like it would be for someone looking for shorter term capital appreciation. The stock has paid a yield of nearly 5% for years which is a solid return. The company is still undervalued so our belief is that the price will increase in time.
Thanks for your comments and thanks for reading!
True about cyclical nature of GM but it’s just so cheap right now. Good pick.
Sometimes it’s impossible to resist a good sale!