After 10 years, 23 crashes and 13 deaths, the House Energy and Commerce Committee is planning to investigate the General Motors (GM) recall of 1.6 million cars. Starting with an incident involving a faulty ignition in a Chevrolet Cobalt in 2004, GM announced that they were recalling over one million cars this February. Now, A House panel is ready to learn more about the recall to determine whether “GM or the National Highway Traffic Safety Administration missed something that could have flagged these problems sooner.”
However, despite the controversies of recalled cars and investigations, Deutsche Bank analyst Rod Lache is recommending BUY GM. Rod is not concerned noting, “We do not believe that the cost of replacing the part, or NHTSA fines will be viewed as material by the Street (new ignition switch will cost around $5 and it will take less than 5 minutes to install).” When comparing GM’s situation with Toyota’s unintended acceleration issue back in 2010, “which led to large market share declines. The impact on GM isn’t expected to be as large.” Toyota’s case involved external competitive factors that affected market share and Rod believes that, “consumer reaction to concerns about unintended acceleration appear to be significantly higher than concerns regarding other safety defects.”
While this recall and investigation is a special situation, Rod has experience recommending GM in the past, along with other automobile stocks like, Delphi Automotive (DLPH) and Tenneco Automobile (TEN). These recommendations have helped earn Rod his spot as the number 67 analyst out of 2441 analysts, with a 7.0% average return over S&P-500 and a 65% success rate of recommended stocks.
At the end of last year October, Rod recommended BUY GM following Q3 results. Rod noted that even though it was a weak quarter, margin strength was apparent, “Margin was 9.3% (in what is typically a seasonally weaker qtr) vs DBe of 8.7%, up 150bp’s YOY and 200bp’s vs 1H13.” Rod added that, “The YOY improvement was largely on the cost side ($400MM improvement) in 2013 largely through sustainable factors.” Rod earned +6.5% over S&P-500.
Rod did experience his only loss while recommending GM in December 2013 saying, BUY GM when the company announced that Mary Barra, the first female CEO of the company, would succeed Dan Ackerson. Rod looked at Mary Barra, “to be one of the most articulate, thoughtful, and impressive executives in the industry.” However, Rod lost -14.0% over S&P-500 following this recommendation.
But, Rod bounced back when his next BUY GM recommendation earned him a positive return. In February, Rod recommended BUY GM before the announcement of the recall. Rod noted, “that the fourth-quarter earnings call made him incrementally more cautious,” however he maintained his BUY position. This recommendation has already earned Rod +1.9% over S&P-500.
Rod has also seen success when recommending other automotive industry stocks, such as Delphi Automotive (DLPH).
In late mid-December, Rod recommended BUY DLPH and raised his price target from $66.00 to $99.00 saying, “we believe that our expectations for modest growth in North America and Europe are well supported; they may ultimately prove conservative.” Rod added, “And in North America, the Street may be underestimating a number of phenomena that could serve to boost volumes, including a dramatic increase in the number of lease terminations (which typically lead to new vehicle sales/leases).” Rod earned +8.9% over S&P-500.
When Rod recommended BUY Tenneco Automotive (TEN) at the same time, he also earned a positive return. Rod reiterated his BUY TEN rating and raised his price target from $59.00 to $65.00, earning +6.3% over S&P-500.
GM might be in for a bumpy ride as the investigation unfolds, but Rod will be recommending along the way. To continue following Rod’s advice, be sure to download TipRanks and start making informed decisions with advice you can trust.
