Trade Wars Are a Distraction for General Motors Company (GM)
Trade wars are back in the headlines, with President Donald Trump set to unveil new 25 percent tariffs of $50 billion worth of Chinese goods on Friday. U.S. trade wars with China and Europe could take a big bite out of international profits for General Motors Company (NYSE: GM), but analysts still say the stock is a compelling long-term value.
Last month, the Wall Street Journal reported that the U.S. Commerce Department is considering a investigation into auto imports. The investigation would likely be similar in nature to the ones that resulted in new tariffs on imported steel and aluminum back in March.
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New tariffs on imported vehicles could potentially hurt U.S. auto companies like GM by raising the costs associated with vehicles produced outside of the U.S. According to Made in America Auto Index, GM produces 20 percent of its vehicles outside the U.S. GM would theoretically be less exposed to potential import tariffs than competitor Ford Motor Co. ( F), which produces 36 percent of its vehicles outside the country.
"We calculate that through April, U.S. sales of vehicles made outside North America were 5.9 percent for GM but 64 percent for Buick due to the Envision from China, Encore from South Korea, and Regal models from Germany," Morningstar analyst David Whiston says.
Regardless of whether or not potential auto tariffs would be a net positive or negative for U.S. auto stocks in the near-term, Whiston says investors shouldn't expect them to last for long.
"We don't see these tariffs lasting forever, and we think these tariffs will ultimately cost American jobs," he says.
Trade wars may be a near-term distraction for GM investors, but Bank of America analyst John Murphy says investors shouldn't lose sight of the GM's tremendous long-term opportunity.
"GM's autonomous EV ride-sharing fleet, combined with the overlay of OnStar, puts the company in a unique competitive first-mover position, which was reaffirmed by SoftBank's recent investment," Murphy says.
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SoftBank's $2.25 billion investment in GM's Cruise autonomous vehicle business implies an $11.5 billion valuation for Cruise alone.
"We continue to believe that GM is one of the best-positioned companies in our coverage universe over the longer term, and its future technology portfolio provides substantial upside optionality to the stock," Murphy says.
Bank of America has a "buy" rating and $60 price target for GM stock.
Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.
