It has also been acknowledged for its long history and significant contributions to the American economy during the 1950s and 1960. General Motors is still one of the titans of the automotive industry with an established presence in the United States market and expanding foothold in China and other markets in Southeast Asia and the Pacific. This article lists and discusses the advantages and disadvantages of General Motors stock.
Revving Up Your Portfolio: A Look Into the Pros and Cons of General Motors Stock
Pros: Advantages of General Motors Stock
General Motors used to be the top automaker in the world for more than 70 years before losing the top spot to Toyota in 2008. It remains the largest automaker in the United States and also one of the largest in the world. It is also one of the largest corporations in the U.S. based on total revenues and is part of the Fortune 500.
The company has a forward-thinking growth strategy. It is building its capabilities for manufacturing electric vehicles and autonomous vehicles. A 2021 announcement also mentioned that it has plans to end the production and sales of vehicles that use internal combustion engines as part of its plan to become carbon neutral by 2040.
Part of the competitive advantages of General Motors is its ability to scale and monetize its investments across its many established brands, supply chain, and distribution channels. The company aims to be more vertically integrated in the future. The following are the specific advantages of investing in General Motors stock:
• Large-Cap Stock Advantages: General Motors is a large-cap stock. Investing in large-cap stocks has advantages compared to mid-cap stocks and small-cap stocks. These range from proven track records of stability and management capabilities to the availability of market information and better liquidity.
• Relatively Affordable Stock: The stock price of this company has not breached the $100 mark and has been trading below $70 per share and further below $50. It is relatively affordable compared to the stock prices of automakers such as Toyota, Volkswagen, and Tesla, or other large-cap companies.
• Notable Growth Potential: General Motors is also a growth stock. Several analysts have noted that the company has strong growth potential. Investing in growth stocks is fundamental in growth investing. These stocks also have several advantages to include substantial investment growth over a shorter period.
• Forward-Thinking Strategy: Investing in this company also means investing in its growth strategy that centers on developing and deploying zero-emission and autonomous technologies. The company aspires to become one of the main players in the electric vehicle and autonomous vehicle markets.
• Stable Financial Performance: Another advantage of General Motors stock is its overall stability. Its financials have been relatively stable over the past decade and the most recent years. The company also has a strong cash flow and substantial cash reserves which provide a competitive advantage.
Cons: Disadvantages of General Motors Stock
General Motors might be the biggest automaker in the U.S. but it still struggles to regain its position as the top automaker in the world. Toyota has been holding the top spot since 2008. The presence of capable American-based companies including Ford and incumbents from Japan such as Toyota intensifies the level of competition.
It is also important to underscore the fact that Tesla dominates the electric vehicle market. It has a strong vertical integration that covers all aspects of production and distribution. The emergence of automakers in China, including companies specializing in electric vehicles, also threatens its prospects of dominating the electric vehicle market.
The entire automotive industry is also cyclical in nature. Vehicles are consumer discretionary products. This means that their marketability depends on the conditions of the economy. The performance of automakers is tied to the boom and bust phases of the economic cycle. The following are the specific disadvantages of investing in General Motors stock:
• Cyclical Business Performance: General Motors is also a cyclical stock. Cyclical stocks are characterized by their close ties to the boom and bust phases of the economic cycle. The financial performance of these companies and their stock prices tend to be unfavorable during periods of economic downturns.
• Slow-To-Move Price of Stock: It is true that the stock price of this company is affordable relative to other large-cap stocks. This stock is also a good pick for growth and value investors. However, based on its historical stock performance, some investors have an aversion over its apparent slow-to-move stock price.
• Impacts of Competitive Forces: The company is compelled to make substantial investments in marketing and product research and development to maintain its brand equity and also keep track of current trends. The presence of competitors also raises the bargaining power of its suppliers and consumers.
• Dependence on North America: General Motors has a global presence but it remains dependent on the North American market. Some of its ventures outside the U.S. had failed due to the presence of automakers from Japan and China. This limits the current and long-term growth potential of the company.
• Supply and Production Issues: It is also vulnerable to supply chain disruptions due to geopolitical tensions, natural disasters, trade laws, shortages, and inflation. This can affect its production target. The company also needs to optimize and scale up the production of its next-generation electric vehicles.