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Bear of the Day: General Motors (GM)


General Motors Co. (GM) is caught between rising commodity costs and the trade war. This Zacks Rank #5 (Strong Sell) is expected to see declining earnings in 2018 and 2019.

General Motors is one of the largest auto makers in the world. It sells vehicles under the Cadillac, Chevrolet, Baojun, Buick, GMC, Holden, Jiefang and Wuling brands worldwide.

A Second Quarter Earnings Miss

On July 25, General Motors reported second quarter results and missed on the Zacks Consensus Estimate by 3 cents. Earnings were $1.81 versus the consensus of $1.84.

Revenue came in at $36.8 billion.

Significant increases in commodity costs and unfavorable foreign exchange impact of the Argentine peso and Brazilian real negatively impacted business expectations.

As a result, GM cut its full year guidance.

Estimates Cut

The analysts reacted to the guidance cut by lowering both 2018 and 2019 estimates.

7 were cut for 2018 in the last two months, pushing the Zacks Consensus Estimate down to $5.95 from $6.42. That's an earnings decline of 10.1% as the company made $6.62 in 2017.

Analysts expect the struggle for growth to continue next year as well as 6 estimates have been cut for 2019 in the last 60 days as well. The 2019 Zacks Consensus Estimate has fallen to $5.71 from $6.13 in that time.

None of the estimates takes into account any impact from possible auto tariffs. They would be adjusted only afterwards, if they are enacted.

Wall Street Flees the Auto Stocks

But with tariffs still looming, investors aren't taking any chances. They've been selling the auto stocks all summer long.

General Motors has fallen 19% year-to-date.

It looks cheap, with a forward P/E of 5.8. But with those falling estimates, it's a value trap.

However, GM does have a juicy yield to soothe shareholder jitters, currently yielding at 4.3%.

There's really no where to hide if you're interested in the auto stocks right now.

Tesla (TSLA) has its own, well-known problems and Ford (F) is also a Zacks Rank #5 (Strong Sell). Investors might want to stay on the sidelines in the auto industry.

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