Although GM’s share price has risen by some 18% since Trump’s election, a lot of bad news is still priced in with the stock trading at a P/E ratio of 6, says Davidson. “The market is pricing in a 15% collapse in car sales. But with though current sales only at pre-crisis level with economic growth accelerating, that’s the last thing I expect to see,” he adds. “The stock is discounting a recession.”
While that seems a long way of now, the odds for a 1930s-style global protectionist wave, triggering a deep recession, have definitely increased during the first week of Trump’s presidency. To put it in the president’s own words: that would be “a disaster, a total disaster” for equity markets.
In that worst-case scenario, however, GM would still outperform its competitors, believes Davidson. “Japanese car stocks, for example, would be more badly hit if they too face tariffs. Relative to its competitors, GM would also profit disproportionally from a Trump corporate tax cut as the US is by far its largest market.”
