BY MARK SEBASTIAN 

September 1, 2023 

Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

Have a stock YOU want us to review? Email my team here. – Mark

Hey Traders,

The Auto industry is in transition…

On one hand, the industry is pushing to electrify its fleet.

On the other hand…labor,  after decades of getting weaker….is getting stronger.

Auto prices are at all-time highs and seem to keep climbing…

Is there an upside in the business?  Today I am going to break down the biggest of the American Automakers…

Not by market capitalization…that is TSLA….but by vehicles made….that right…We are looking at General Motors.

The Good

Tesla has revenue of 94 billion dollars…that is a lot…the company is worth 815 billion dollars.

GM has revenue of 170 billion dollars and is worth 46 billion dollars….

The numbers do not add up.

GM made 10 billion dollars in the last 12 months….Tesla made 12.

Tesla has better margins for sure…but 18X GM…no it does not.

GM has more cash, a higher EPS, and a higher book value….

Interestingly you would think  GM’s PE would be low…but both have really inflated PEs

The PEs are laughable….TSLA has a PE of 72,  GM….4

When you compare GM to TSLA…one would think it was a no-brainer…

GM seems like a clear buy…

But is it?

The Bad

Take a look at GM’s long-term debt…

80 BILLION DOLLARS!

Here is TSLA:

The differences in valuation are all about Debt.

GM is carrying almost twice the value of the stock in debt.

TSLA has less than a billion dollars in debt.

That appears to be the entire story.

One company has great numbers from a stock fundamental side….but a ton of debt.

The other…the exact opposite.

So this leads to the big question…

What is the long-term outlook for GM with its debt…can the company pay the number down…?

Disappointingly,  after being relatively stable the last few years it has gone up in the last year.

With rates rising….borrowing will not be so easy for GM.

Remember the last time the FOMC held rates high for a long period of time and then the US entered a recession…

It was 2008….

How did that go for GM?

But that does not mean this outcome will be the same.

You may not know this but I was a market maker in the GM pit on the CBOE in 2006 and 2007.

At that time GM was 25-30 dollars a share….

All I did was sell the 2.5 and 5-dollar puts in the LEAPS while I made markets…

These were bondholders hedging their holdings….

If the bond holders are scared we would see it in WAY out of the month options…

Currently, open interest in the GM Jan 2025 and the June 2025 puts add up to only 4100 contracts.

The bondholders seem happy.

The Verdict

Knowing the bondholders seem happy…I would be watching the debt issuances of GM…if debt starts to fall…

Buy the stock.

If GM can get their debt under control it might be the best buy in the stock market.

But right now…I would say if I am long I sit on the stock…I wouldn’t short it…but I wouldn’t go out and buy it here.

I can get about 1.15 selling the Jan 30 put,  I would sell that…below 30,  the stock is a buy…

Right here…it’s a hold.

Questions about that? Leave a comment below!

Your only option,

Mark Sebastian