By Al Root
General Motors isn't a car company. It's a cash machine, which is the best reason to add shares to your portfolio.
The Detroit-based auto maker has managed to pull off a surprising trick. Its market capitalization has dropped from a peak of almost $100 billion in late 2021, when electric-vehicle euphoria sent shares of Rivian Automotive to almost $180.
GM's stock, however, is up more than 40% over the past five years even as its market cap clocks in around $75 billion today. The magic is share repurchases: GM has spent roughly $30 billion retiring 500 million shares over that span. The cash for the repurchases came from the business. Since 2021, GM has generated about $53 billion in free cash flow, despite Covid, inflating prices, tariffs, and ever-changing EV policies.
GM, in short, deserves a little more credit for being a stable business with strong management. If investors were to realize that, shares could rise to $135 in a year, a gain of 50% from current prices. If they don't, share repurchases still support double-digit gains.
"The business is producing significant free cash flow, and management is enhancing per-share value by repurchasing shares at a discount to our estimate of intrinsic value," says Oakmark investment analyst Joe Pittman. "The core auto business is strong and has proven resilient across a range of challenging macro environments."
To be sure, GM is still a car company, and that business has been challenged lately. Americans still are't buying as many new cars as they did before Covid, partly because a new car is roughly $10,000 more expensive than before the pandemic. GM has also been forced to write off billions in EV investments because U.S. demand for all-electric cars simply didn't materialize as expected. It wasn't helped by federal policy changes -- car buyers lost the $7,500 EV purchase tax credit in September.
Policy hurt profits in another way, too. President Donald Trump's tariffs, intended to bring manufacturing back to the U.S., caused a mini-downturn for the U.S. auto industry this past year. GM ended up earning $12.7 billion in 2025 operating profits, down from 2024's $14.9 billion.
Automotive free cash flow was $10.6 billion, down from $14 billion in 2024. That still left GM stock with a free-cash-flow yield of 14% at the end of the year. The S&P 500's free-cash-flow yield is closer to 3%. Traditional car companies such as GM don't get big valuation ratios. Its shares trade for about 6.5 times estimated 2026 earnings. The S&P 500 trades for 22 times.
Car companies are almost certainly never going to get a big price/earnings ratio. Things can get a little better than they are, though. GM's financial position is better than ever coming out of a downturn, says Citigroup analyst Mike Ward. It can break even at much lower volumes. (GM didn't lose money in 2020, despite Americans buying less than 14.5 million new cars, down from an annual average of more than 17 million from 2015 to 2019.) GM's car business carries very little debt. The banklike GM Financial unit has debt, but its book value ended 2025 at almost $16 billion.
What's more, affordability is improving as price increases moderate and wages rise. U.S. new-car demand should be stable to higher over the next several years.
He rates GM shares Buy and has a $131 price target, up 55% from recent levels. That price values GM shares at just over nine times estimated 2027 earnings. GM stock traded at about nine times estimated next-year earnings in 2021. It also traded close to seven times on several instances in the past few years. That more modest multiple still points to a $100 stock within a year.
There are emerging opportunities that could boost valuations. GM and Lockheed Martin on Tuesday announced a new collaboration aimed at boosting defense manufacturing productivity. Manufacturing for defense is a new opportunity. Auto makers are also shifting unused EV battery capacity into utility-scale backup power, capitalizing on the AI data center building boom.
To be sure, there are risks. Tariffs roiled the sector in 2025, and the U.S.-Mexico-Canada trade pact is up for review in July. Trump has indicated that he is unlikely to renew the deal as is. That can lead to more tariff talk and volatility for the sector.
GM says it supports stringent automotive rules of origin, "provided that any changes come with sufficient lead time, are crafted based on robust industry input, and recognize that some products are not available locally and the auto industry alone cannot provide sufficient scale or demand pull to move them here."
New trade agreements shouldn't be existential to the profitability of the domestic auto makers. They will likely lead to more domestic auto production, which could cause prices to creep up a little. The industry has already endured far worse through Covid and Liberation Day. USMCA risk isn't a reason to avoid the sector.
Even if GM valuations don't change, there is the ever-shrinking share count. GM is currently working on a $6 billion share repurchase, announced as it also hiked its quarterly dividend to 18 cents from 15 cents previously. (Shares yield about 0.9%.)
That buyback represents about 60% of GM's average annual free cash flow over the past few years. There is no reason to expect the company to pivot away from its recent cash deployment strategy.
That will keep the share price moving higher, even if GM's market value doesn't budge.
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This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 18, 2026 08:01 ET (12:01 GMT)
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