Morgan Stanley has turned bullish on GM
By the end of day, GM had turned in a beat on October sales, down only about 2% from last October, in the context of a yearly sales pace running above 18 million new vehicles, a figure that exceeded expectations by a wide margin.
It was a qualified upgrade from Morgan Stanley.
"We are not pitching GM (or any incumbent auto company) as a long-term beneficiary of the transformation to shared, autonomous, and electric transport," Jonas wrote. "We argue that GM´s value to investors may lie in the elongation of its relevance and profitability during the early and middle stages of the transformation to autonomous (but not yet driverless) transportation."
This is the first occurrence we've seen so far of the "elongation" thesis, which can be translated as "these guys are going to continue selling A LOT of cars and trucks over the next two years."
In all seriousness, even if the US auto market enters a recession or undergoes a predictable cyclical downturn, Morgan Stanley is arguing that car companies that are raking it in now could continue to do so until some wildly disruptive but still vaguely understood future arrives.
A solid balance sheet
The bottom line is that GM's balance sheet looks appealing to Jonas.
"[W]e forecast GM to accumulate in excess of $30 [billion] of net auto cash by 2020,equal to nearly two-thirds of GM's market cap," he wrote.
"Is this the ideal time to invest in auto stocks from a cyclical perspective? Not at all. Is the US auto cycle at a peak? Yes. Are we concerned about a near-term cyclical collapse in US auto sales? Due to a variety of reasons (automotive credit, safety-driven replacement demand) we are not."
So another translation: the good times in the US auto industry should continue for a while. So what's good for GM could be good for Morgan Stanley clients.
The markets shrugged off GM's October sales and Jonas' note. The stock closed at $31 on Tuesday, and is down over 7% year-to-date.