Warren Buffet’s advice to “[be] fearful when others are greedy, and greedy when others are fearful” is fitting for where the stock market sits currently. Some investors have become cautious since the market approached record highs, but there are always values to find and portfolio gains to be had. Two of the most important factors when evaluating investments is to find companies with sustainable profits and positive catalysts that could boost their stock prices. I believe General Motors Company (NYSE:GM) and Cummins Inc. (NYSE:CMI) both are a perfect match when considering those factors.
Lean and diverse
General Motors Company (NYSE:GM) has restructured its operations enough that analysts estimate it could break even as long as the U.S. market sells over 10 million vehicles. That’s a drastic improvement considering that prior estimates pointed to a break-even point of 16 million vehicle sales. GM’s leaner operations will provide sustainable profits.
In addition to its leaner operations, it’s also not dependent just on sales here in the U.S. General Motors Company (NYSE:GM) also enjoys a dominate position in the world’s largest and fastest-growing automotive market – China. China’s vehicle sales are expected to grow by nearly 12 million vehicles by 2020. That’s the equivalent to Europe’s entire market today and will certainly help GM grow its top-line revenues.
Cummins Inc. (NYSE:CMI) is a global equipment powerhouse that sells a full range of products in over 70 countries, but is best known for its leading technology and high-quality engines. Its top of the line engines bring in 53% of company sales, yet the company relies on diversity to ensure its profits are sustainable. It brings in the rest of company sales from three other business segments, lessening its dependence on engines for its growth. Moreover, its U.S. and international sales are about evenly split. This leaves Cummins and its investors with very sustainable profits that will only improve as the global economy picks up.
For General Motors Company (NYSE:GM) I think there are two short-term catalysts that could boost profits and demand for its stock. The first catalyst will happen when GM breaks even in Europe, a factor that could remove up to $2 billion in losses per year and directly boost bottom-line profits. Management expects to break even in the region by mid-decade, and reported first-quarter losses that were less than expected – a good sign early in the year.
The second catalyst won’t directly affect profits, but it will likely provide additional demand for General Motors Company (NYSE:GM) stock. The U.S. treasury plans to close the book on its ugly chapter of auto industry bailouts; when it unloads the rest of its shares in GM, it might provide the signal to buy that potential investors have been waiting for. Only time will tell how much those two factors will boost the stock price, but one thing is for sure, both will be very positive events.