Valuation and fundamentals
General Motors Company (NYSE:GM), Ralph Lauren and Diageo plc (ADR) (NYSE:DEO) are global leaders in car manufacturing, upscale clothes design and premium alcohol production and distribution. Diageo is based in the United Kingdom while General Motors Company (NYSE:GM) and Ralph Lauren Corp (NYSE:RL) are headquartered in the United States. Regardless of their primary location, each company operates on a global level. Below is a table with valuation and fundamental measures for each company.
| GM | RL | DEO | |
| Market capitalization | $45.9B | $17.2B | $77B |
| Enterprise value (EV) | $40.1B | $15.9B | $89.5B |
| Price-to-CFO | 5.2 | 17.2 | 20.8 |
| Price-to-earnings (PE) (2013) | 10.2 | 23.3 | 19.2 |
| Price-to-sales | 0.3 | 2.5 | 4.6 |
| Price-to-book value | 1.7 | 4.5 | 8.1 |
| Employees | 213,000 | 25,000 | 25,700 |
| International revenue (2012) | 44.2% | 37.7% | 71.9%* |
| 1-year total return | 55% | 29% | 28% |
Source: Capital IQ, Thomson Reuters, SEC filings, authors calculations; EBITDA – earnings before interest, tax, depreciation, and amortization, CFO – cash flow from operations.*World ex. U.S. and Canada
As seen from the table above, GM has the most attractive valuation based on PE and price-to-CFO ratios. If we look at each company’s book value, GM also seems to have the lowest price-to-book value as well as price-to-sales value.
It seems that Ralph Lauren Corp (NYSE:RL) is valued for a sustained growth and is the riskiest stock. Diageo is a defensive stock as people drink alcohol regardless of the economic environment so its valuation could be closer to its fair value. In addition, Diageo plc (ADR) (NYSE:DEO) has significant debt as its enterprise value exceeds its market capitalization. Often, reasonable amount of debt improves equity returns as it provides additional, tax advantaged, capital for the company. Finally, General Motors Company (NYSE:GM) is a recovery story. With new car, truck and SUV models on the horizon and the average car age in the U.S. reaching new highs, GM seems also like a stable investment.
Recent developments
GM will be launching new generation full-sized pickups (Chevy Silverado and GMC Sierra) in the next few months that should bring proof of its “innovation and ingenuity” capabilities in the auto industry. The shares could see pressure from the U.S. Treasury recently announced plans to sell in the open market the remaining 241.7 million General Motors Company (NYSE:GM) shares it holds. Also, GM’s plan to invest an additional $5.2 billion in Opel (its European brand) through 2016 to support new model launches could be risky. Opel’s loss in Europe has been nearly $20 billion since the 1990s and $1.8 billion in 2012. However, Europe is a key market for design, development and sales. Similar to Jay Gatsby, GM CEO Dan Akerson is known for hiding his true identity and walking anonymously in dealerships pretending he is buying a car.
Ralph Lauren Corp (NYSE:RL) is similar to Jay Gatsby in that the company broke a few laws and recently had to pay fines to the U.S. Department of Justice ($882,000) and the Securities and Exchange Commission ($735,000). The reason was that the company turned itself in and admitted to paying bribes to customs officials in Argentine from 2005 through 2009. On a more positive note, Ralph Lauren has outstanding upcoming collections according to fashion directors including:
- Colleen Sherin (Saks Fifth Avenue),
- Tomoko Ogura (Barneys New York), and
- Nicole Fischelis (Macy’s).
Also, it recently launched handbags retailing for $22,500 apiece, which should be perfect for today’s Daisy.
Finally, Diageo plc (ADR) (NYSE:DEO) recently launched a retail channel of its own for its luxury brands in the U.K. (www.alexanderandjames.com), and to market and sell directly to consumers its luxury brands (Tanqueray gin and Ciroc Ultra Premium vodka). This marks a new strategy where for the first time Diageo is selling to consumers directly on-line in the U.K. Diageo is also targeting women directly with its advertising and new bottle style for the Baileys brand. The company announced a $10 million initiative aimed at empowering 2 million women in 17 countries in the Asia Pacific region by 2017. “Plan W: Empowering Women through Learning” helps women of different social standings in job training and skills development. Countries in the list include Nepal, Sri Lanka, Myanmar, Cambodia, India, Malaysia, Singapore, South Korea, Vietnam, Indonesia, Thailand and China.
Conclusion
It seems like a modern Jay Gatsby would be a fan of General Motors Company (NYSE:GM), Ralph Lauren Corp (NYSE:RL), and Diageo plc (ADR) (NYSE:DEO). Investors looking to invest in leading automobile, fashion, and alcohol companies that have been around for decades are certain to find good investments in the three companies discussed above. Even though Jay Gatsby and his time are long gone, fancy cars, clothes, and liquor are here to stay.
The article The Gatsby Portfolio originally appeared on Fool.com and is written by Delian Naydenov.
Delian Naydenov has no position in any stocks mentioned. The Motley Fool recommends Diageo plc (ADR) and General Motors. Delian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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