Growth stocks are all the rage on the market right now, and that means a lot of value stocks have been overlooked by investors. Long-term, this could provide some opportunities for investors who are looking for less risky and more value-oriented stocks.
Value can be measured in a number of ways, but for my top value stocks I was looking for companies with profitable operations that trade at reasonable price to earnings multiples and have options for growth over the next decade. Given that criteria, General Motors (NYSE:GM), Verizon (NYSE:VZ), and Visa (NYSE:V) made the top of my list.
Traditional auto stocks have been overlooked over the last few years as investors have become enamored with anything related to electric vehicles. Even companies without revenue are getting multi-billion dollar valuations in today’s market. That may make GM’s large and profitable auto business downright boring — but long-term investors should remember that the stock is cheap and offers potentially high growth over the next decade.
To start examining how cheap GM’s stock is, let’s pull out the asset I’m most excited about — the company’s stake in Cruise, which I’ll discuss below. Based on a recent $2 billion fundraising round, GM’s stake in Cruise is worth $23.4 billion, and is growing rapidly as the company prepares to launch a fully autonomous ride sharing business. With that in mind, GM’s market cap excluding Cruise is only $53.9 billion.
That puts the adjusted price to earnings multiple at about 16. If we look at analyst estimates for $5.89 per share in earnings in 2021, shares trade for just 6.4 times 2021 estimates after pulling out the Cruise stake.
You may not be bullish on GM’s traditional business long-term, but it’s cheap at 6.4 times 2021 estimates, and now that the company has committed to being fully electric by 2035 it could be a leader in EVs as well. But a decade from now it’s not the auto manufacturing business that could be driving GM’s returns — it’s Cruise and the potential for fully autonomous ride sharing. In GM, we’re getting two great businesses at a cheap price.
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