General Motors (GM, Financial) ended 2016 on a flat note as the stock was up just 3%, but the stock has gained strong momentum heading into 2017. It has already appreciated approximately 10% year to date.
As a matter of fact, several analysts expect that auto sales in the U.S. will reach their topmost point in the near future, which could result in fierce competition and decreasing margins. The recent hike in interest rates could also have an adverse effect on auto sales. Moreover, the company’s image had also been damaged by a record number of recalls in 2015. In spite of all the issues, 2016 was a good year for the company.
The company still appears to be in a great position to gain benefits this year. China plays a significant role keeping in mind General Motors’ future growth as China accounts for the largest auto market around the globe. Though the company observed slothful sales in the U.S., its Chinese sales have been escalating at a rapid pace.
The company’s retail sales in China reached 3.44 million units which represents a surge of 8.5% year over year. China produces more than one-third of the company’s worldwide sales. Most importantly, with the unrelenting growth of China’s middle class, this drift could endure in the years ahead.
The key reason behind General Motors’ robust performance in China has been its steady introduction of new and refreshed vehicles together with its economical Baojun brand. In 2016, the company launched 13 new as well as refreshed models in China. The company also is putting in a lot of effort to accomplish its target of launching 60 new and refreshed models by 2020.
On the other hand, General Motors’ valuation looks attractive, and the company is prudently taking advantage of the cheap valuation. The company has been returning huge wealth to stockholders via buybacks as well as dividends. Currently, the company pays a quarterly dividend of 38 cents per share which signifies a dividend yield of approximately 4%.
Most importantly, that amazing yield still consumes nearly 17% of General Motors’ yearly earnings, which shows there is still massive room for dividends to surge in the future.
Moving ahead, General Motors expects that 2017 will be another great year. The company projects its earnings per share in the range of $6 to $6.50 for the full year (2017). It also projects this year’s overall revenue to be greater than the previous year’s revenue.
In spite of all the concerns surrounding General Motors, the company has shared a robust guidance for 2017 that is worth noticing. It also expects to produce approximately $6 billion of free cash flow this year.
Stockholders should hold the stock for long-term gains, especially due to the continuously rising sales trend in China.
Disclosure: No position in the stocks mentioned in this article.
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