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General Motors: Debt-Free and $21 Cash per Share


Despite the hype about the US auto industry's comeback, its shares seem unlikely to accelerate in the near term. But for long-term investors, some car companies are worth a look.

Bullish Fundamentals

Thanks to its bankruptcy and recent strong sales, GM has a very strong balance sheet. The company is mostly debt free, has almost $21 cash per share (current share price: $24), and shows a forward price-to-earnings (P/E) ratio of 6.

Can GM, given its new lease on life, use its strong balance sheet to reclaim its former position of global dominance? If you believe that it can, GM stock is an excellent buy.

Because its debts weren't wiped out by bankruptcy, Ford must contend with $100 billion in debt. GM only has $15 billion in debt.

If, on the other hand, you believe GM and Ford are only kept alive by government subsides, threatened by pension obligations, and under UAW constraints, consider the rapidly growing Japanese and Korean automakers instead.

Toyota and Honda make some of the best cars in the world. They, too, have strong cash positions, relatively low debt, and single digit forward projected P/E ratios. As an alternative to the US carmakers, Toyota and Honda are good buys now.

As to South Korea's Hyundai: US investors are advised to indirectly invest in the company through the South Korean Index ETF (NYSEARCA:EWY), which has Hyundai as its second-largest holding.

Explosive growth in emerging markets will lift shares of Hyundai, which has a strong presence in less-developed nations. Investors in the company will enjoy a long and profitable ride.

This article by Bruce Vanderveen was originally published on Investing Daily.

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