2 Reasons to Buy this Top Overlooked Stock in October

General Motors achieved record adjusted pre-tax profits of nearly $15 billion in 2024, a 21% increase, despite its stock price remaining sluggish. The company is demonstrating a significant turnaround in its China operations, with sales surging 10% in the third quarter, marking the third consecutive quarter of growth following a substantial restructuring effort. Concurrently, GM has aggressively returned value to shareholders, announcing $16 billion in share buybacks since 2023 and increasing its quarterly dividend by 25%, resulting in a robust 15.6% total yield that includes the impact of buybacks. These developments suggest GM may be an undervalued opportunity for long-term investors given its operational improvements, market recovery, and strong shareholder return initiatives.

Analysis

General Motors (NYSE: GM) reported record adjusted pre-tax profits of nearly $15 billion in 2024, a 21% year-over-year increase, despite its stock price remaining sluggish. A significant operational turnaround is evident in its China business, where sales surged 10% in the third quarter, marking the third consecutive quarter of growth. This follows a substantial nearly $5 billion restructuring charge aimed at achieving profitability in the competitive Chinese market by 2025, with Q3 deliveries reaching approximately 470,000 vehicles.

Despite strong financial performance, GM's stock has traded at a low price-to-earnings ratio, even trailing its rival Ford (NYSE: F). The company has aggressively addressed this by announcing $16 billion in share buyback programs since 2023, leading to the retirement of over 400,000 shares. Furthermore, GM increased its quarterly dividend by 25% in February, contributing to a robust total yield of 15.6% when factoring in share repurchases, significantly surpassing Ford's 6.9% total yield.

This strategic focus on operational efficiency and shareholder returns positions GM as a potentially undervalued opportunity for long-term investors. The reversal in China, coupled with substantial capital returns, suggests the company is making significant progress that the market has yet to fully appreciate. While the automotive market remains competitive and cyclical, GM's recent initiatives indicate a strong foundation for potential outperformance.

Key Decisions for Investors

• Investors should evaluate GM's current valuation relative to its strong adjusted pre-tax profits and significant capital return program, which includes $16 billion in buybacks and a 25% dividend increase.
• Monitor the sustainability of GM's China sales growth, particularly its progress towards profitability by 2025, as the 10% Q3 surge represents a crucial reversal in a previously challenging market.
• Consider GM's total yield of 15.6%, which incorporates share repurchases, as a key indicator of shareholder value creation, potentially signaling an attractive entry point for long-term positions.