Successful investing: Asia, Latin America may determine GM's future

Published: Sunday, June 29 2008 12:11 a.m. MDT

Question: Any information about long-term prospects for our General Motors Corp. stock would be appreciated. — F.R., via the Internet

Answer: "Wouldn't you really rather have a Buick?" was the longtime advertising slogan of that U.S. brand.

These days, many motorists in China these days really would. During my visit to Beijing earlier this year, I was impressed by the number of GM-made Buicks on its crowded streets.

Faster growth in emerging markets, especially Asia and Latin America, is the key to the long-term prospects of the world's largest automaker by sales. More than 1 million GM vehicles were sold in China last year, and its sales there are expected to eventually eclipse those in the U.S.

"The company that gets China right is going to be the dominant player for the next 25 years," GM Chief Executive Rick Wagoner predicted earlier this year.

In the present, however, GM is bleeding red ink and losing North American market share, while European sales are also slipping. It lost $3.25 billion in the first quarter and closed four U.S. pickup truck and sport-utility vehicle factories as it shifted to smaller vehicles consuming less gasoline.

A three-month strike at a major supplier was costly, and May sales were down 28 percent compared with a year ago. Another problem is that GM holds a 49 percent stake in financier GMAC LLC, recently downgraded further into junk status by Moody's Investor Services due to mortgage lending woes.

The automaker's shares (GM) are down 30 percent this year following a 16 percent decline last year. The 64 percent rise of 2006 was driven by SUV sales.

Some positives: GM's all-electric Volt vehicle and a new small car more fuel-efficient than Chevrolet Cobalt will debut in late 2010. Cost savings from the new United Auto Workers' lower wage structure also go into effect in 2010.

The Chevrolet Malibu is a hit, while Cadillac and Buick receive high marks for quality from experts. In a massive reduction, 19,000 hourly GM workers in the U.S. accepted buyout or early-retirement offers with a July 1 exit date.

The consensus rating of GM stock by Wall Street analysts is "hold," representing divergent opinions, according to Thomson Financial. There are three "strong buys," eight "holds," one "underperform" and one "sell."

After an arduous 2008, next year's earnings are expected to rise 75 percent versus the 609 percent forecast for the major car manufacturers. The five-year annualized return of 7.25 percent compares with 14 percent industrywide.

Question: Please tell me whether the Dreyfus Fund is worth owning. — P.R., via the Internet

Answer: This previously lackluster fund took a turn for the better in mid-2005 when talented portfolio manager Sean Fitzgibbon of the Dreyfus affiliate The Boston Company took command.

Seeking reasonably priced stocks with strong fundamentals and growth prospects, Fitzgibbon conducts disciplined quantitative research and modeling to determine the best choices in various industries. Three co-managers assigned to specific sectors assist him. The firm also added some analysts to bring its research team total to 25.

The $1.34 billion Dreyfus Fund (DREVX) is down 9 percent over the past 12 months and has a three-year annualized gain of 7 percent. Both results rank in the top one-third of large growth and value funds.

"At this point, we recommend Dreyfus Fund with the qualification that, even though it has improved, its manager has only been on board a short time," said Lawrence Jones, analyst with Morningstar Inc. "It is a core holding for an individual investor, fitting capably into that role as a stable actively managed fund."

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