We came across a long thesis on Ally Financial Inc (NYSE:ALLY) on ValueInvestorsClub by SamPR. In this article we will summarize the bulls’ thesis on ALLY. The company’s shares were trading at $42.93 when this thesis was published, vs. closing price of $35.85 on Jan 3rd.
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Ally Financial Inc (NYSE:ALLY), originally the financial arm of General Motors, became an independent publicly traded company in 2014 and has grown into one of the largest consumer auto lenders in the United States. While the company has diversified its offerings over time, it remains primarily focused on auto lending, with more than 70% of its loan portfolio dedicated to consumer auto loans and dealer financing. Additionally, ALLY provides auto insurance, commercial loans and credit cards, and manages a portfolio of mortgage debt, supporting a diversified business model that also encompasses brokerage services.
The author believes that it is currently an opportunistic time to invest in shares of Ally Financial Inc (NYSE:ALLY) as the company is likely to benefit from rate-cycle dynamics – current peak rates and inverted yield curve mask earnings, but things should reverse accordingly. The author argues that auto loans are issued at the longer end of the curve, while ALLY receives its funding closer to the short end, which means that the company’s Net Interest Margin will expand once the yield curve normalizes/steepens. Second, the company has invested significant resources to strengthen its competitive position, which should start paying off in the near future. The improvements in competitive position and execution are linked to better customer service, primarily backed by a high-quality management team, investments in the auto dealership business, reflected through improving the scale of partner dealerships, and investments in the deposit gathering operations, which have materialized into an incredibly useful and efficient digital banking app for the company’s consumers.
All in all, the aforementioned competitive strengths, coupled with a potential inflection towards a more favorable interest rate policy, lead the author to the conclusion that ALLY represents an attractive investment at current market prices. However, no precise price target is provided for the stock.
While we acknowledge the potential of ALLY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ALLY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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