David Kudla: GM Earnings Will Impress, Despite China Weakness

In a recent research note, David Kudla, CEO and chief investment strategist of Mainstay Capital Management, looked into General Motors Company GM ahead of the announcement of the company’s second-quarter financial results scheduled for Wednesday morning. The firm expects to see another strong quarter in the earnings front, despite of the much-discussed slowdown in China.

'Undervalued' Opportunity

In a lackluster S&P 500, Mainstay Capital Management sees GM as an undervalued opportunity. The stock looks attractive both short term and intermediate term; in addition, investors should consider its forward price-to-earnings multiple of 6.4x and a dividend yield of 4.6 percent, the expert added.

The Chinese Impact

"In June, the downward and volatile Chinese stock market in turn impacted the world's largest new car market, losing 2.3 percent for the month year over year and recording the first decline in more than two years. With GM being a major player, just behind VW, this situation will be in the forefront,” Kudla explains.

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However, the stock has been performing poorly this year, leaving investors pretty perplexed. But now it seems like the shares are on their way to recuperating; over the second quarter, the gap with the S&P500 has been closing considerably – and Kudla believes the company will continue to close this gap in spite of the slowdown in China.

Having said this, the strategist thinks GM will still do better than its competitors in China, on the back of a strong SUV offering (as demand for the group continues to surge).

In fact, GM’s China sales were up 4.4 percent year-over-year in the front half of 2015. "There is no doubt GM be will impacted by a slowdown in China, but the company has put the right products in place to soften a landing,” the report adds.

Moreover, Mainstay Capital Management says it would be more worried about a considerable slowdown in the U.S. than in China, “as profitability would be greatly impacted.”

Overall for 2015, the analysts feel that “GM is marching to a solid plan of progression in key regions. With automotive industry sales on track to sell a solid 17 million vehicles, the company should be poised for steady growth in 2015 and beyond. This should likewise reflect in the stock price this year."