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Five Reasons GM is Set to Move Higher

All of the headlines about General Motors (GM) this week focused on the new CEO, Mary Barra. She’s currently the global product chief, and now she’ll make history as the storied company’s first female head honcho.

But glass ceilings aside, I believe the more significant story about GM is the U.S. government’s final sale of its remaining GM stock.

The investment has been a dud for the taxpayers. In the final analysis, the government lost over $10 billion. However, calling it a loss assumes that the elites who run the country actually wanted a net gain – and this couldn’t be further from the truth.

The real reason President Obama was so quick to pump money into GM was to keep the United Auto Workers alive. And in return, the United Auto Workers have poured millions of dollars into Democratic war chests, including President Obama’s campaign.

The bottom line is that the elite just want to keep the money rolling. And once you understand that, it becomes much easier to profit from political intelligence. As investors looking to build a fortune, we want to get ahead of government policy and moves… which is exactly why I think GM is perfectly positioned for us to profit right now.

Here are the five reasons I expect shares to move higher:

  1. General Motors is cheap. In fact, the auto firm is a great value by many traditional measures. It’s currently trading at $40.40 per share. If analysts’ profit predictions are accurate, it’s selling for a forward PE of only 8.67 and a price-to-sales ratio of just .37.
  2. The government-forced restructuring is working. GM was forced to close Saturn and Pontiac and shutter a vast array of underperforming dealers. GM also closed factories and rationalized its cost structure. It’s likely that all of this would’ve happened in bankruptcy without the government aid, but the bottom line is that it did indeed happen.
  3. Since the company’s IPO, the government has been relentlessly selling shares. The transaction this week was for more than 2% of the total shares outstanding. You can’t have the government selling shares all the time without downward pressure on the stock price.
  4. Many customers have been avoiding GM cars because of the federal ownership issue. “Government Motors” has been the butt of jokes and a serious point of ridicule for the firm. When Ford Motor Company (F) refused government aid and restructured privately, it was able to use the absence of a government overlord against GM.
  5. GM has momentum and has posted 15 consecutive profitable quarters. The profits and earnings have been especially good in the recovering North American market.

Ultimately, GM is the perfect example of how you can profit as the government is leaving. Shares have been rising in anticipation of the government getting out of the automaker’s business. Now, look for GM executives to finally run the business without looking over their shoulders, worried about meddling from Washington.

To life, liberty, and prosperity,

Floyd Brown

Floyd Brown

, Political Expert

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