Will The Good Times Last For GM Stock?

General Motors (NYSE:GM) has been one of the best-performing large auto stocks this year, rising by about 20% year-to-date, driven by improving profitability and higher truck sales.  This compares to rival Ford stock (NYSE:F), which has declined 17% over the same period.

GM recently reported stronger-than-expected Q2 2024 results, with revenue rising by 7.2% year-over-year to $48 billion, marking a record for the quarter. Earnings per share reached $3.06, exceeding consensus estimates by nearly 10%. Additionally, the company raised its full-year guidance, now projecting adjusted operating earnings between $13 billion and $15 billion, up from the previous forecast of $12.5 billion to $14.5 billion. In Q2, the company sold 696,086 vehicles, an increase of 0.6% from the previous year.

Notably, full-size truck sales rose by 6% year-over-year, with a total of 229,000 units sold. GM is gaining traction in the lucrative pickup truck market, with truck sales increasing by 5% in the previous quarter. This trend is beneficial for GM as the growing sales of high-margin Chevrolet and GMC branded pickups and SUVs are likely to enhance profitability. Furthermore, GM’s new deal with the United Auto Workers last November is also likely to be having a softer-than-expected impact on the company’s earnings thus far.  While wages increased about 11% when UAW approved the new contract, GM’s operating profit guidance boost indicates that the company is absorbing these costs relatively comfortably.

That being said, there are warning signs within the U.S. automotive market. Retail automotive sales have been declining as consumer confidence wanes and high interest rates make vehicle financing more expensive. According to JD Power, the average transaction price for new vehicles fell by 2.6% year-over-year in July to $44,300, driven by increased manufacturer incentives and discounts. Additionally, the U.S. job market is showing signs of cooling, with nonfarm payrolls rising by only 114,000 in July, significantly below the 179,000 reported in June and below consensus estimates. This economic slowdown could further impact consumer spending and the automotive market. The automotive industry is likely to experience a normalization of prices following a period of undersupply and unprecedented inflation. GM’s full-year guidance also indicates that it could see a potential decrease in profits for the latter half of this year. Although this could be due to a lower number of production days and increased costs associated with transitioning to newer models, it could underscore a cooling economic environment as well.

GM stock has witnessed gains of 15% from levels of $40 in early January 2021 to around $45 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the increase in GM stock has been far from consistent. Returns for the stock were 41% in 2021, -43% in 2022, and 7% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that GM underperformed the S&P in 2022 and 2023.

Consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the mega-cap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GM face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

We have a $43 price estimate for GM, which is roughly in line with the current market price. See our analysis on General Motors Valuation: Expensive Or Cheap for more details on what’s driving our price estimate for GM. For more information on GM’s business model and revenue trends, check out our dashboard on General Motors Revenue: How GM Makes Money. In the near term, GM could continue to benefit from a higher mix of truck sales. Moreover, the slowdown in the EV market should also benefit traditional players such as GM with more time to monetize gas-based vehicles while investing in long-term electric vehicle developments. That said, concerns about the broader global economy  and weaker consumer spending could impact the stock.