The carmaker has delivered solid operating metrics and impressive international growth for the past two quarters, but its stock can't generate much momentum. The equity currently costs an enterprise-value-to-EBITDA multiple of 3.9 and a free-cash-flow multiple of 4.7, 52% and 74% peer discounts. The analyst sentiment for GM remains positive.
About 74% of researchers in coverage advise clients to purchase shares and 26% recommend that they hold them. A median 12-month target of $42.67 suggests that the stock is universally considered undervalued as that mark suggests a 46% advance.
When GM filed for bankruptcy, its bondholders and stockholders were essentially wiped out, but the new GM has a claim on their losses, which allows it to avoid taxation. Its NOLs, or net operating losses, may allow GM to shield anywhere from $14 billion to $19 billion of its profit from taxes, helping its stock's outlook.
Also, if online financial Ally, made up of former GMAC assets, goes public, GM will garner the proceeds. However, concern about a sale by the U.S. government, which currently holds about 35% of shares outstanding, is keeping investors on the sidelines.
1. Citigroup has gone from darling to dog rather quickly. Among the hottest stocks of 2009, Citigroup more than tripled from its March 2009 low and then rallied 43% 2010. It has dropped 16% in 2011, though other financials have also lagged. The Financial Select Sector SPDR has fallen 4.4% in 2011 as the S&P 500 gained 3.6%.
Still, Citigroup is gaining momentum.
But, the stock's largest advocate group, hedge funds, may have altered their thesis. Hedge funds' aggregate position in Citigroup decreased 24% to 202 million shares last quarter, as David Tepper's Appaloosa Management, Lee Ainslie's Maverick Capital and Louis Bacon's Moore Capital Management significantly reduced their stakes in Citigroup. The selling may be premature. A rebound was manifest in Citigroup's latest quarterly report.
The bank's adjusted first-quarter earnings per share dropped 29% to $1, but exceeded analysts' consensus earnings forecast by 10%. Revenue, down 22%, missed consensus by 4%, but the shares stagnated in response to the report. Citigroup is still whittling down to core operations, selling assets from Citi Holdings, its "bad bank" counterpart. The sell-side has a favorable view, awarding the stock 20 "buy" recommendations, seven "hold" calls and three "sell" ratings. A median price target of $56.17 suggests a potential 12-month return of about 41%.
JPMorgan values Citigroup at $65, suggesting the stock will rise 63%. It likes Citigroup because of "shares trading below tangible book level, strong capital levels, sizeable amount of loan loss reserves, and potential for faster growth from emerging markets."
As it sells non-core assets from Citi Holdings, Citigroup will offer greater leverage to emerging markets growth. The bank recently reinstated its quarterly dividend and, at 7.4-times JPMorgan's 2012 earnings estimate, shares are quite cheap relative to the market.
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